Shoe Stores Stink: UBS Downgrades Foot Locker, Finish Line

Your athletic shoes might smell after heavy use, but it could be worse: They could stink like apparel and footwear stocks. Analysts at UBS turned bearish on both Foot Locker, Inc. (NYSE: FL) and Finish Line Inc (NASDAQ: FINL) Monday.

Foot Locker's worse-than-expected earnings report on Friday makes it "much tougher" to support a positive view of athletic retailers, UBS' Michael Binetti said in a research report. Even if Foot Locker's woes are temporary in nature, the analyst has doubts that retailers can "sidestep" structural challenges.

Shoemakers continue to build out their direct-to-consumer businesses, which implies consumers will no longer be shopping for shoes at retailers, the analyst said. Foot Locker and Finish Line will also have to tackle the growing threat of Amazon.com, Inc. (NASDAQ: AMZN)'s full entry into the market — an event that is "almost certain," according to UBS.

Foot Locker and Finish Line need to more aggressively close underperforming and poor stores, but this also creates an "organizational distraction," Binetti said.

Of the two retailers downgraded, Finish Locker has greater exposure to geographic regions where other department stores have been closing locations in suburban markets, Binetti said. This is a poor proxy for the retailer, as opposed to Foot Locker, which has better exposure to the stronger urban market, the analyst said.

• Binetti downgrades shares of Foot Locker from Buy to Neutral with a price target lowered from $70 to $37.
• Binetti downgrades shares of Finish Like from Neutral to Sell with a price target lowered from $14 to $9.

At last check, shares of Foot Locker were down 5.15 percent at $32.61. Finish Line shares were down 7.99 percent at $10.13.

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