Under Armour and Adidas are challenging Nike, but Nike’s portfolio of merchandise is considered strong
Nike Inc. is expected to announce third-quarter earnings on Tuesday.
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The athletic brand has faced challenges from growing competition, bankruptcies in the sporting-goods space and other factors. However, analysts express confidence in the brand’s strengths in product innovation and marketing, and note new sneakers and clothing like a performance hijab could help the company maintain its lead.
Nike NKE, +1.50% shares have an average overweight rating with a $61.66 price target, 6.7% higher than Friday’s close of $57.80.
Earnings: Analysts polled by FactSet expect earnings per share of 53 cents, down from 55 cents last year. Estimize, a software platform that crowdsources estimates from buy-side analysts, hedge-fund managers and others, sees EPS of 54 cents.
Nike has beaten FactSet’s earnings expectations each quarter since the first fiscal quarter of 2012.
Revenue: FactSet sees sales of $8.47 billion, up from $8.03 billion last year. Estimize expects revenue of $8.46 billion.
Share price: Nike shares are down 8.2% in the past year, but up 11.6% in the past three months. The S&P 500 index SPX, +0.03% and the Dow Jones Industrial Average DJIA, +0.16% are up 4.7% in the past three months.
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Other issues: Nike has faced recent issues that UBS analysts believe are “mostly temporary” and largely based on inventory issues stemming from retail bankruptcies, including The Sports Authority. The inventory question is tied to growth in promised retail orders, known as futures orders, a metric that Nike Chief Financial Officer Andrew Campion said has “become increasingly less correlated” with revenue growth.
“While Nike has commented several times in prior quarters that the full price channel in the U.S. is cleaner, we still believe athletic inventories in the U.S. across all channels remain elevated considering ongoing sluggish consumer demand and retail bankruptcy risk,” UBS analysts wrote in a Wednesday note. “While negative futures isn’t a necessarily bullish leading indicator, we think it would be the right move for Nike to continue managing inventories in the channel until broader consumer trends stabilize.”
Delayed tax refunds could also hurt third-quarter sales, after Foot Locker Inc.FL, -2.19% said that it was a setback, according to analysts.
UBS rates Nike shares as a buy and raised its price target to $67 from $61 on Wednesday.
“Share gains by competing brands and retailer commentary around future allocations continue to point to a more subdued order environment for Nike,” Wedbush analysts wrote in a Wednesday note. “Our view is that in the medium term, Nike will continue to have challenges, particularly in the U.S., in sales and margins as the competitive environment escalates and the product pendulum swings away from the company.”
Wedbush rates Nike shares as neutral with a $52 price target.
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Adidas AG ADS, -0.68% and Under Armour Inc. UAA, +0.54% have been making inroads in the athletic arena, analysts say.
“The sporting goods industry has become more geared to fashion than it was in the past, and we do expect a reaction from the competition, particularly Nike, which has massively underperformed Adidas in the U.S. in 2016,” Raymond James analysts wrote in a Wednesday note on Adidas, following that company’s investor day.
Susquehanna Financial Group analysts are far more bullish on Nike, saying the company’s “innovation is robust, value has been enhanced, and engagement is improving.” They credit the company’s brand and messaging strength with reinvigorating the company.
“In our view, any concern about Nike slowing due to the stellar growth of Adidas is misplaced,” Susquehanna analysts wrote in a Wednesday note. “Nike continues to elevate its lifestyle offering much in the way Adidas has.”
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Analysts call out the launch of the new Air Vapormax line of sneakers on March 26, the 30th anniversary of the introduction of the company’s Air Max 1, as well as other new styles across the company’s portfolio. Susquehanna also believes the company can “drive excitement” with its retro styles and other iconic merchandise to compete in the lifestyle category.
Susquehanna rates Nike shares as positive with a $64 price target.
Nike recently generated buzz with the launch of a plus-size line and the Nike Pro Hijab, which will be available next year for $35 and can be seen now on figure skater Zahra Lari.
“In recent times, designers and retailers have introduced plus sizes for everyday wear, but the activewear segment has received little attention,” said Jared Wiesel, partner at Revenue Analytics. “This could be a great new avenue for growth for Nike, while also increasing positive brand perception.”