Footwear and apparel retailer Foot Locker, Inc. (NYSE:FL) is entering the final weeks of 2020 with many of its stores closed, and its long-term post-pandemic outlook has its own separate headwinds, according to Piper Sandler.

The Foot Locker Analyst: Erinn Murphy downgraded Foot Locker from Neutral to Underweight with a price target lifted from $25 to $29.

The Foot Locker Thesis: Foot Locker's near-term outlook is impacted by growing COVID-19 cases worldwide, and one out of 10 stores across the world are currently closed, Murphy said in a downgrade note.

In Europe, 50% of stores are temporarily closed, and the company doesn't have an advanced digital business there as it does in the U.S., the analyst said.

The retailer faces a "soft start" to the quarter, and its ability to recover lost sales in Europe is a challenging proposition, she said. 

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Over the long-term, Foot Locker faces a separate set of challenges as Nike Inc (NYSE:NKE) continues to emphasize its own digital business, Murphy said.

Put in perspective, Nike's digital business is modeled to exceed $7 billion in 2020 versus Foot Locker's total expected sales of $7.6 billion, the analyst said. 

The risk to Foot Locker is that it loses exposure to the Nike brand, which accounts for 71% of Foot Locker's sales, she said. 

While Foot Locker is still Nike's largest wholesale partner, consumer trends are shifting toward Nike's digital business, which is expected to generate an incremental $2.6 billion in sales this year, Murphy said. 

"Despite the favorable tide that appears to be lifting all boats in the athletic space this year, we see FL as having a tougher time to returning to a sustainable positive L/MSD comp-growth rate on the other side of the pandemic."  

FL Price Action: Shares of Foot Locker were down by 2.37% at $38.35 at last check Monday. 

Photo by Dwight Burdette via Wikimedia.