Shares of Foot Locker Inc experienced a substantial decline on Friday following the release of a disappointing full-year forecast. This forecast sheds light on the difficulties faced by the footwear retailer as its main supplier, Nike Inc, expands its direct-to-consumer (DTC) sales. Foot Locker announced that in 2022, Nike will constitute about 60% of its total purchases, a decrease from 70% the previous year and 75% in 2020.

This change in purchasing patterns reflects Nike’s strategic shift toward a direct-to-consumer business model and Foot Locker’s continuous efforts to diversify its offerings. While Foot Locker has traditionally enjoyed a strong partnership with Nike, this change in strategy presents a significant challenge. Analysts, like Wedbush’s Tom Nikic, were surprised and concerned by this development as they believed Foot Locker’s position as a strategic partner would provide some level of protection from Nike’s DTC push. However, Nike’s pronounced shift in strategy has caught many off guard.

Over the past year, Nike has encountered hurdles in its supply chain and has faced the closure of production facilities. These challenges have prompted the company to focus more on selling directly to consumers rather than relying on wholesalers. In the latest quarter, Nike’s DTC sales amounted to $4.7 billion, accounting for approximately 40% of its total sales.

According to Foot Locker’s Chief Executive Richard Johnson, the company will still have access to Nike’s products, but the quantity may vary. Johnson explained that Foot Locker has been working to mitigate the risks associated with Nike’s new strategy by strengthening its partnerships with other brands like Adidas, Puma, and Timberland. Additionally, Foot Locker has expanded its apparel offerings and introduced its own private label brands to diversify its product range.

For fiscal year 2022, the company predicts a decline in comparable sales ranging from 8% to 10%. Furthermore, Foot Locker estimates adjusted profit to be between $4.25 and $4.60 per share, significantly below the average analyst estimate of $6.49 per share, according to Refinitiv estimates.

As a consequence of this lackluster forecast, shares of Foot Locker plummeted by 35% to $26.85 in afternoon trading. If these losses persist, it would mark the stock’s worst day ever. This significant decline in share price reflects the concerns of investors regarding Foot Locker’s ability to navigate the challenges posed by Nike’s shift in strategy. To regain investor confidence and secure its future success, the footwear retailer will need to continue its efforts to diversify and adapt to the changing dynamics of the industry.

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