Nike Inc. is scheduled to announce fiscal fourth-quarter earnings on Thursday after the closing bell amid rising momentum and increasing optimism from analysts.
“Nike’s trend is accelerating into back-to-school with improved sell-through, increased AURs [average unit retail], and improving merch margins on a tightly managed supply,” wrote Cowen in a note.
As competition with Adidas AG ADS, -0.63% heats up, Nike NKE, -1.67% was able to leverage its iconic styles, like the Air Max, to drive business in the same way the Stan Smith shoe did for Adidas back in 2016 and 2017, Cowen says.
Distribution of the Jordan basketball shoes has improved, the company’s direct-to-consumer efforts are yielding results, and the collaboration between Nike and Off-White designer Virgil Abloh was a “success.” Abloh is currently the artistic director for Louis Vuitton menswear.
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Cowen analysts think Nike is positioned to outdo Adidas in not just back-to-school, but in the holiday season. They rate Nike shares market perform with an $80 price target.
Analysts are so upbeat that even when they downgrade Nike shares, the note is optimistic.
“Nike looks like a long-term winner and is Softlines’ one ‘blue chip stock,” wrote UBS analysts led by Jay Cole in a note that downgraded Nike to neutral from buy. UBS has a $78 price target on Nike stock.
“Near-term outperformance is unlikely in our view,” UBS said.
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Even the recent executive purge is reaching a positive outcome.
“[O]ur UBS Evidence Lab Glassdoor analysis suggests the changes have improved company morale,” the UBS note said. “In fact, Nike employees’ CEO approval rating has jumped 22% since November. Plus, its employee’s business outlook is near peak and overall job satisfaction ranks in the industry’s top echelon.”
Nike stock has an average overweight rating with an average target price of $68.59. It closed Monday at $72.35.
Here’s what to expect:
Earnings: Nike is expected to report earnings per share of 64 cents, according to the FactSet consensus, up from 60 cents last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects 67 cents.
Nike has beaten earnings expectations going back at least to March 2013, according to FactSet. Since August 2016, the beats have been double-digits, with earnings beating expectations by 28.6% last quarter.
Revenue: FactSet consensus is for revenue of $9.4 billion, up from $8.7 billion year-over-year.
Estimize expects revenue of $9.5 billion.
Revenue has beaten expectations the last two quarters, according to FactSet. In August 2017, revenue fell short by 0.2%.
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Share price: Nike shares are up 7.8% for the last three months and up 34.8% for the last 12 months. The Dow Jones Industrial Average DJIA, -0.68% is up 1.8% for the past three months and has rallied 14% for the past year.
Other issues:
-UBS doesn’t think the athleisure trend is going anywhere, forecasting 5% global growth, driven by gains in developing markets.
“Athleisure is still about comfortable and casual attire, but is moving away from ‘performance’ to more ‘streetwear’ styles,” analysts wrote. “Fortunately for Nike, sneakers are at the center of streetwear culture and consumers accept it as a streetwear brand.”
-Gross margins are set to improve.
“On the margin, Nike is poised to return to gross margin expansion for the first time in eight consecutive quarters as FX pressure, direct-to-consumer and average selling price turn to a more meaningful tailwind,” wrote Wedbush analysts led by Christopher Svezia.
Wedbush rates Nike shares outperform with an $82 price target.
-Susquehanna Financial Group analysts remain cautious.
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“Visibility into whether Nike can grow North America at a mid-single-digit pace, while keeping the brand sacrosanct, will likely not emerge until after first quarter 2019,” analysts led by Sam Poser wrote.
Analysts also expressed concern about whether Nike can achieve the $50 billion goal it set for the next five years.
“[A]s the pressure for growth in North America mounts, Nike may need to ‘push’ more product into the market, as it realizes that the ‘pull’ model will not support the long-term targets,” analysts said. “In other words, if Nike ‘pushes large volumes of its newer platforms into the marketplace in order to meet sales goals, an oversupply situation will likely occur, leading to brand erosion, gross margin degradation and revenue declines.”
Susquehanna rates Nike shares neutral with a $64 price target.
