Shares of Foot Locker (NYSE:FL) saw a 4% decline intra-day today following a downgrade by Citi to Sell with an assigned price target of $18, suggesting a possible 22% downside. The analysts at Citi believe Foot Locker will prioritize inventory clearance by the end of the year, which is expected to impact the company’s profit margins.

According to the analysts, factors such as a weakening macroeconomic environment and high inventory levels are likely causing Foot Locker to increase promotional activities beyond their initial plans for the fall and holiday seasons.

Citi’s earnings projection for Foot Locker in the fourth quarter is set at $0.16, falling below the Street estimate of $0.33. This lower estimate is due to anticipated weaker sales and margins.

Foot Locker is expected to focus on reducing its inventory in the short term, even if it means lower margins. The company’s significant reliance on Nike products, which make up about 64% of its sales, limits its autonomy in decision-making. Looking forward to fiscal year 2024, the challenging macroeconomic conditions are seen as a hurdle for the company’s turnaround efforts. Citi’s forecast for fiscal 2024 is earnings per share of $1.15, which is below the Street estimate of $1.98, factoring in weaker comparable sales.

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