Nike Should Remain ‘Strong’ In Q2, Analysts Say

Ahead of Nike Inc.’s second-quarter earnings release, Wall Street continues to set high expectations for the firm.

In addition to upbeat estimates, Susquehanna Financial LLLP analyst Christopher Svezia, Citi Research analyst Kate McShane and Sterne Agee CRT analyst Sam Poser all maintain buy or positive ratings on Nike’s stock.

“Worldwide trends remain strong and Nike continues to build momentum,” Poser wrote in his earnings preview. “Nike is leveraging its number one global position in sports footwear and apparel, and $4 billion-plus net cash position, to drive sales towards the FY2020 target of $50 billion. Sales and margin opportunities remain across all geographies, categories, and genders.”

Justifying the firm’s premium valuation, Poser notes “Nike is one of the very few large-cap companies with sales and [earnings per share] growth trajectory of 10 percent and mid-teens, respectively,” and “Nike is one of the most shareholder-conscious companies in the consumer space, with continued strong ROIC & ROE metrics.”

Bullish forecasts aside, while the impact remained minimal, Nike faced a few challenges in the last quarter — among them was an inventory overage in North America stemming from the West Coast port slowdown last year.

“Nike expects full-year gross margins to expand 50 basis points year-over-year on higher [average selling prices] and growth in [direct-to-consumer]; however, Q2 was only expected to be up 25 basis points as Nike works to clear some excess inventories in North America following the port disruptions earlier this calendar year,” McShane pointed out.

McShane added that since Nike gave its guidance in late September, the euro and Japanese yen have turned weaker (declining 4 percent and 2 percent respectively), which could also impact guidance “slightly.”

McShane predicts Q2 EPS of 85 cents, 5.4 percent revenue growth driven by double-digit currency-neutral growth in the U.S., Europe and China.

Svezia upped his EPS forecasts, in line with consensus, to 85 cents and added $2 to his price target for the stock, bringing it up to $145.

“We still see upside potential from Europe given favorable traffic and improved segmentation,” Svezia wrote. “North America and China momentum should continue while we note that the Emerging Markets begin to lap inventory issues from last year … Importantly we look for 15 percent to 18 percent futures growth given benefits from Olympics-related product.”

Poser predicts EPS of 86 cents, which represents 16.4 percent growth, versus 74 cents in 2Q15; a reported revenue increase of 5.7 percent, (up 12 percent FX-neutral) versus 14.8 percent in 2Q15 (18 percent FX neutral growth); and FX-neutral future orders to increase 13 percent versus 11 percent last year.

Nike will report Q2 on Dec. 22.

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