Yesterday, Nike (NKE) confirmed in their earnings call that they are piloting a limited assortment with Amazon (AMZN). This does not surprise me as Nike has discussed previously their plans to build out their online and direct-to-consumer channels. Our view is that this is not a zero sum game and Nike can continue to expand its online base without significantly deterring customers from waiting in long lines at premium distributors like Foot Locker, Inc (FL).
Foot Locker is a leading global retailer of athletically inspired shoes and apparel with 3,363 retail stores in 23 countries. They also operate direct-to-consumer businesses through online, mobile, and catalog channels. This includes their website and Eastbay, a leading destination for the serious athlete.
At the time of writing, shares are down 30% YTD, which is mostly driven by overblown fears in the brick and mortar apparel space. While some of the decline is justified due to some margin pressure in the future and some loss of sales due to pure online demand, profitability remains in-tact, and as Nike unveils new products they will continue to want a retail presence where customers can go to stores and check out the latest trends in person and not just online.
Historic financial performance has been strong, with healthy sales growth, margin performance, and very low risk of bankruptcy with a very healthy balance sheet.