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Nike Shares Dip on Conservative Outlook

Analysts downgraded their forecasts for Nike Inc. after the company cautioned that foreign currency pressures in emerging markets and sluggish sales in China would weigh on earnings in the current quarter and next fiscal year.

Nike CFO Donald Blair said on a conference call with analysts and investors on Thursday that the devaluation of developing market currencies against the U.S. dollar “will be a significant drag on next year’s reported revenue, gross margin and profit growth.”

As a result, Blair said, Nike now expects earnings per share in the fiscal year beginning in June will be “somewhat” below the company’s mid-teens percentage target.

Nike shares were 3.1 percent lower in midday trading, at $76.83.

“While in general the quarter was very positive and the futures orders are strong, the company’s shares are selling off today because of the forward guidance,” said Morningstar analyst Paul Swinand.

Macquarie analyst Laurent Vasilescu said the company’s strong third-quarter result was overshadowed by currency headwinds, which are also an ongoing concern for other global athletic brands, such as Adidas.

“The third quarter stood out from both a top-line and bottom-line perspective. Unfortunately, management is calling for ongoing foreign exchange headwinds for the fourth quarter of fiscal 2014 and fiscal 2015,” he said, noting that Adidas management provided similar commentary on March 5.

Vasilescu downgraded his fiscal 2014 EPS forecast to $3.16, from $3.25, due to the weaker outlook.

While the stock was lower following cautious comments from management, analysts agree that Nike is well positioned for long-term growth.

Orders for Nike-branded shoes and clothing scheduled for delivery between March and July 2014 rose 14 percent globally year-on-year, and 30 percent in Western Europe, excluding the impact of currency fluctuations.

“Nike is controlling what it can control through strong product innovation and superior brand discipline,” Sterne Agee analyst Sam Poser wrote in a note to clients.

“However, investments to support the World Cup and new infrastructure and foreign exchange pressures, especially in the emerging markets where many currencies were devalued, will pressure EPS growth,” he added.
 
For the third quarter, Nike delivered a 4 percent increase in diluted EPS to 76 cents, while revenue rose 12.7 percent to $6.97 billion. Analysts had predicted third-quarter earnings of 72 cents on sales of $6.69 billion. 

“The solid sales momentum Nike is experiencing across product categories — such as basketball, running, footwear and apparel — and across geographies — [including] North America, Western Europe and emerging markets — coupled with 14 percent future [orders] growth, is impressive,” said Canaccord Genuity analyst Camilo Lyon.

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