Shares of Footstar rose nearly as much as 20% on Tuesday after the Wall Street Journal reported that some analysts and investors are betting recent concerns about the shoe retailer are exaggerated.

The WSJ column said that a number of analysts and investors believe that Footstar is well positioned to more than triple from the low of $3.30 it hit last November, after accounting issues related to Kmart first surfaced. The article also noted that, “Footstar’s struggling athletic-footwear chain, FootAction, which had been losing market share to Foot Locker, is wooing buyers with new offerings from Nike. One potential plus: Nike has limited Foot Locker’s access to such products.”

The article went on to say that, “Indeed, Footstar’s FootAction unit said January and February same-store sales were up by “very high single-digit” percentage points on the strength of the company’s better product allocation from Nike.”

The author also pointed to the fact that Footaction is offsetting the Just for Feet issues, stating that, “Although FootAction’s strong sales were largely offset by weakness in the company’s struggling Just For Feet chain, sales in the company’s athletic-footwear retail division still grew 1.5% to $241.8 million in the first quarter. That’s a good sign for a unit that investors for years have treated as a liability.”

Merrill Lynch analyst Virginia Genereux, who has a “neutral” rating on Footstar, says the company is “completely fine from a liquidity perspective” and that the stock could rise when the company finally restates earnings — “if it’s anything better than a disaster.”
“The strength of the stock has to do with the favorable article and people saw that 25 percent of the stock is short,” said Banc of America Securities analyst Robert Ohmes. He referred to shares held by short sellers, who sell borrowed shares on expectations that the stock price will fall, allowing them to reap a profit. Nearly five million Footstar shares, or 25% of the company’s float, are sold short.

In May, Footstar said it would not file its quarterly financial report as expected because statements are still being reviewed by its auditor, KPMG LLP. Footstar has not reported earnings since November.

Kmart, which has leased its footwear departments to the FTS Meldisco division, revealed in its recent Q1 release that Meldisco sales for the period were off 20% to $246 million. Total Kmart sales were only down 13.9% based on the closing of 600 stores.

“Footstar is a Mark Twain stock: Reports of its death are greatly exaggerated,” says Larry Leeds, a portfolio manager at Buckingham Capital Management Inc., who has been “looking” at the stock. “Shorting it is the fashionable thing to do right now, but there is going to be definite pressure on the shorts at some point.”