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Nike impacted by declining Foot Locker sales, retail environment

Yahoo Finance markets reporter Josh Schafer breaks down the impact of Foot Locker sales on Nike, retail inventory, and how the resale market is impacting the company.

Video transcript

[AUDIO LOGO]

SEANA SMITH: Foot Locker shares is sinking for the second trading day in a row over the past five days. You're looking at losses of just about 30%. Now, the company reported weaker than expected . A full year profit guidance last week, but this might not be just a Foot Locker problem. Yahoo! Finance's Josh Schafer is here to explain who else could be at risk here. And maybe it's a sector wide issue when it comes to apparel-- athletic footwear.

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JOSH SCHAFER: Yeah, Seana. So, I want to talk about Nike today. And really what you're looking at with Nike is there's sort of two things. There's their relationship to Foot Locker, and then there's the overall sector and what could be happening. But when we start with what's happening at Foot Locker, you take a look at Foot Locker sales have dropped over the last several quarters now-- or sorry not the last several quarters, but same store sales over the last several quarters have sort of been dwindling. Weak again this quarter.

And what you're really looking at there is just a general slowdown. They're calling it a tough macroeconomic backdrop. But where that relates to Nike is Nike represents about 70% of Foot Locker's overall sales. So Foot Locker is seeing less sales. They're probably selling less Nike's, too. Wedbush pointing out in their note today that Nike actually accounted-- or Nike was a significant down draw, so what they saw was non-Nike sales increased.

Wedbush then took that to mean that Nike probably-- Nike sales probably decreased in about the mid-teen range. And what's going to happen here is Foot Locker is saying that they still have too much inventory, right. Foot Locker still-- inventory is up 25% year-over-year. They want to offload that. Well, those are going to be Nike shoes that they're not going to buy then, right? Because they're still selling those shoes. And I think what people are worried about here is what that means for Nike overall and Nike's business. Are people just going to be buying less shoes as we see that consumer discretionary slowdown?

SEANA SMITH: What do you make of the inventory picture here this earnings season because we had seen for so many consecutive quarters that retailers across the board were really struggling with their inventory levels. Some of these retailers have been able to get it under control when you take into account what we heard from Target last week, Walmart, TJX. But when it comes to this side of the business, why do you think they're having a much tougher time? Do they not promote? Do they not have those types of markdowns that we were seeing maybe at some of the other retailers?

JOSH SCHAFER: I think you have seen markdowns. And like you said, the big box retailers is a great story up on Yahoo! Finance right now on those-- and the inventory problems that they're not seeing, but what you're seeing with the retailer-- or with the athletic retailers is sales are just down, right. They were the biggest laggard in retail sales last month. People are not buying that second or third pair of shoes. And when you talk about a broader promotional environment, something that an analyst pointed out today with Nike-- other websites, like a StockX that sells Nike shoes on a secondary level, are now selling them cheaper than Nike sells them.

Nike is now marking down shoes that are very popular. You talk about the Air Max 90s, Air Max 95s. Nike has sold those shoes for over $100 for years. Some of those now, you go on Nike's websites, there's a lot of shoes for under $100. So I think the environment is actually maybe over promotional in some ways, and then you become competitive against yourself if you're Nike when your shoes are out there on the secondary market for cheaper than you're trying to sell them on your website, it's hard to offload that.

SEANA SMITH: Yeah. Extremely challenging environment. I was actually shopping for Nike's this weekend and looking for those deals. So maybe more ahead. All right. Josh Schafer, thanks so much.