Goldman Sachs is the latest firm on Wall Street to downgrade Foot Locker after a disappointing update from the athletic retailer. Foot Locker on Friday projected a drop in revenue this year as it expects to sell fewer Nike products. The retailer announced no single vendor will represent more than 55% of its supplier purchases beginning in the fourth quarter of 2022. "The thing that we kept thinking about post the announcement on Friday was 'How could we not see this coming?', 'How is it that we thought FL would be OK as Nike pursued its [direct-to-consumer] strategy?'" Goldman's Kate McShane said in a note Monday. Goldman lowered its rating on Foot Locker to neutral from buy. The firm also cut its 12-month price target on the stock to $35 from $63. The new projection implies 10.7% upside from Monday's closing price. Shares fell 2.3% in premarket trading Tuesday, part of a wild rise that saw the stock tumble nearly 30% on Friday then rebound 8.8% on Monday. The call comes after Citigroup, Credit Suisse, Morgan Stanley, Evercore ISI and Seaport all downgraded Foot Locker in the wake of its Nike update. Barclays and B Riley on Tuesday both also downgraded Foot Locker. Goldman said Nike's shift in focus to its direct-to-consumer channel could weigh on Foot Locker for some time. "While Nike continues to be the majority of FL's offering, the reduced depth will impact how effectively FL can serve consumers on selective Nike products, which will likely impact comp growth. Further, we think the risk persists that this allocation could get pulled back further over time as Nike continues to pursue its DTC strategy, which has been successful," McShane said. The firm said it is remaining neutral, rather than more negative, because of Foot Locker's size advantage and solid balance sheet. "FL remains the largest sporting goods retailer in the world, which should allow it to still be competitive when selling athletic footwear," McShane said. Foot Locker shares are down 27.5% on the year. — CNBC's Michael Bloom contributed reporting.
