Foot Locker’s warning on Friday appears company-specific Foot Locker (NR) shares were off c.30% on Friday following a warning on FY22 and FY23 profits. The reasons cited were tough comps from 2021’s fiscal stimulus, news that Nike is cutting Foot Locker’s allocation from Q4 and Foot Lockers’ ongoing brand and category diversification strategy. Nike accounted for 65% of Foot Locker’s revenues in 4Q21 and management expects it to fall to less than 55% in 4Q22. By management’s own admission, it has relied on too few SKU’s over the last 2 years and on Nike and Jordan. Limited read-across to JD Sports in our view. Reiterate BUY Foot Locker’s comment may raise concern over Nike’s DTC strategy and risk of disintermediation. We believe Foot Locker’s warning is company-specific. Nike has always said it wants to grow wholesale revenues; just with fewer partners. We see Foot Locker as being squeezed in two places: 1) North America, where we suspect it has probably over indexed in launches for some time and its allocation is being impacted by JD Sports’ growth. JD is c.60% of Foot Locker’s size in the US; 2) Europe, where Foot Locker lacks dominance, differentiation and apparel, unlike JD Sports. Nike is busy rationalising wholesales partners in Europe this year, which we expect JD Sports to benefit from. JD Sports is strategically in a much stronger position than Foot Locker in our view. JD Sports is growing market share in multiple parts of the world with a differentiated and elevated format and a strategy which complements the Brands’ own strategies. In our view, Foot Locker has been slow to elevate its format and diversify into apparel (c.15%), preferring to return cash to shareholders rather than investing in defending its US position. The breadth of JD’s offer in brands and apparel (apparel c.50% in UK sales, over 35% in Europe and 20% US) means JD Sports is already in a much stronger position. JD has been elevating and broadening its proposition for over 10 years and has built the necessary skill set already. Finally, JD Sports raised FY22 guidance on 17th February and reiterated its expectation for flat profits FY23 on FY22. This was after Foot Locker heard the news on its allocation in January. JD Sports’ guidance already reflected the tough US fiscal stimulus comp (guided to £100m of FY22 profits one-off) and we believe would reflect its expected supply outlook.