While solid profit and revenue growth in Q2 are evidence of consistent consumer interest in Nike Inc.’s wares, analysts say the firm’s futures-orders growth was the highlight of the quarter.
“Global futures [growth] of 20 percent came in well above our 15 percent [growth] estimate, indicating strong demand across key regions,” wrote Camilo Lyon, an analyst at Canaccord Genuity Inc. “North America futures (up 14 percent), reflect continued strength in the region, boding well for athletic retailers (e.g., Finish Line and Foot Locker). Western Europe (up 25 percent) and China (up 34 percent) both accelerated sequentially, exhibiting robust demand across multiple categories, like sportswear, running and basketball.”
Given the volatile macroeconomic environment in China, analysts continue to be impressed by Nike’s ability to produce robust revenues in the region quarter after quarter.
“China continues to be on a roll, benefiting from [Nike’s] previous hard work,” wrote Susquehanna Financial LLLP analyst Christopher Svezia. “China was very strong across all metrics. We were pleased to see that all categories were strong, with the company’s ‘category offense’ clearly paying dividends, as evidenced by the region’s 51 percent growth in direct-to-consumer and the most successful ‘Singles Day’ ever.”
Svezia and other analysts were slightly sidelined, however, by Nike’s reiterated guidance despite the unprecedented growth in futures orders.
“Nike quizzically maintained its full-year revenue guidance of mid-single-digit growth, suggesting timing differences were the cause of the below-futures revenue guidance,” Lyon wrote. “With the forthcoming Olympics and Euro Champs, we are inclined to believe conservatism is at play.”
With inventory growth, at 11 percent, outpacing sales growth of 4 percent, Nike may also want to work on unloading inventory before setting higher expectations, suggested UBS Investment Bank analyst Michael Binetti.
“Nike’s guidance implies that wholesale revenues (minus FX pressures) will only grow by low-to-mid-single digits in the [second half], despite orders from retailers growing by more than 20 percent for that period,” Binetti wrote. “We understand why Nike would want to guide conservatively as it clears excess U.S. inventory (in addition to sluggish current U.S. softlines industry trends).”
Although it soared significantly in after-hours trading Tuesday, at press time, Nike’s share price was down 1.5 percent, to $129.88.