Goldman Sachs downgrades Foot Locker to sell; cuts 6-month price target to $10

BOSTON, Jan 15, 2008 (Thomson Financial via COMTEX) -- FL | news | PowerRating | PR Charts -- Goldman Sachs Tuesday downgraded Foot Locker Inc. to sell from neutral, citing expectations of further declining U.S. sales productivity, despite store closures, causing additional margin pressure.

Goldman Sachs also cut its 6-month price target to $10 from $17, and removed the Not Rated designation on the stock of its Collective Brands list.

"We expect same-store sales declines to extend into 2008 as the impact of recession exacerbates existing challenges from the limited number of compelling merchandise trends," analyst Brad Cragin said in a research note.

Cragin added that sales productivity in the U.S. remains 7% above trough levels of $282 in sales per square foot. He said Foot Locker will move closer to this trough in 2008 ($286 in sales per square foot), causing additional deleverage on fixed costs.

In addition, while store closures (about 300 in 2007 and another 110 likely in 2008) will eliminate fixed costs and contribute roughly 10 cents a share to earnings, Cragin said these moves "will merely help the company keep pace with sales declines, not necessarily get ahead of them." He projects selling, general & administrative expenses to fall 4% in 2008 as a result of store closures.

Goldman Sachs lowered its earnings estimates to 60 cents from 65 cents a share for fiscal 2007, to 70 cents from $1.07 a share for fiscal 2008, and to 94 cents from $1.25 cents a share for 2009.

The mean estimate of analysts polled by Thomson Financial is for 2007 earnings of 65 cents a share, 2008 earnings of $1.08 a share, and 2009 earnings of $1.33 a share.

Goldman Sachs also cut its 6-month price targets for Nike Inc. (to $67 from $73) Columbia Sportswear Co. (to $41 from $58), Under Armour Inc. (to $45 from $55), K-Swiss Inc. (to $16 from $21) and Lululemon Athletica Inc. (to $35 from $45), citing concerns over the prospect of recession.

Shares of Foot Locker closed Monday at $11.28. Casey Logan cl/pc

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