Overheard On Wall Street: Nike And Wolverine World Wide

Athletic-footwear-and-apparel behemoth Nike Inc. is still a week away from its Q1 earnings release, but analysts are already chiming in with their expectations. Meanwhile, Wolverine World Wide Inc. gave market watchers a preview of its next earnings release.

Read on for the buzz.

Nike Inc.

Despite some global economic headwinds, analysts maintain that Nike’s dominance in China and Europe could remain significant drivers of the company’s Q1 earnings, slated for release Sept. 24.

Citi Research analyst Kate McShane said her firm’s FYQ1 Nike Europe survey indicates positive sales and average selling-price trends in Europe, “with the strongest growth in Spain and the United Kingdom.”

Nike continues to snap up market share in the region from Adidas, Puma, Asics and Reebok, McShane noted on Sept. 16.

Meanwhile, in China, McShane said Nike’s Q1 sales accelerated by high single digits year-on-year from mid single digits in Q4, with footwear up 8 percent.

The first quarter, noted Susquehanna Financial LLLP analyst Christopher Svezia, has historically been a top performer for Nike.

“We look for Q1 earnings per share of $1.21, or above consensus at $1.19, driven by gross-margin expansion and some SG&A leverage,” Svezia wrote on Sept. 17. “We raise our price target to $133 on multiple expansion, owing to Nike’s sustainable global growth and improving operating leverage.”

Svezia shared McShane’s upbeat outlook on China but noted that Nike’s underlying strength in Europe and Emerging Markets may be affected by currency and World Cup compares.

“While negative currency and strong World Cup compares will damper reported sales growth across Europe and Emerging Markets, underlying trends should remain strong given continued market-share gains and strong pricing,” Svezia wrote.

Sterne Agee CRT analyst Sam Poser was less bullish, maintaining a neutral rating on the stock, noting China and FX pressures as potential drags on revenue.

“Nike is and will be the industry leader,” Poser wrote on Sept. 17. “However, the current valuation, the law of large numbers and difficult comparisons make the growth rate very susceptible to deceleration.”

Poser, who lowered his EPS estimates to $4.04 to $4.58, from $4.13 to $4.76, said he sees little upside from current levels but expects Nike to continue to gain share worldwide “due to ongoing innovation and expenses dedicated to [research and development], marketing and infrastructure.”

Wolverine World Wide Inc.

The share price of the parent company of Sperry, Merrell and Keds took a dive this week after the firm pre-announced a mixed Q3 performance.

Ahead of its Oct. 20 earnings-release date, the firm revealed that its adjusted EPS was in line with the company’s most recent guidance, but its revenue declined 4 percent to 5 percent on a reported basis.

Weakness in Stride Rite stores, consumers’ unwillingness to accept increased pricing at Sperry and overall weakness in the retail environment were among the reasons for the declines, Poser wrote on Sept. 18.

After adjusting for the impact of foreign exchange, retail-store closures and termination of the Patagonia license, revenue was flat year-over-year, the firm said.

Svezia lowered his price target, citing “continued topline weakness.”

“We were also disappointed to see another round of SG&A cuts, which doesn’t appear to be sustainable against broadly weak brand performance,” Svezia wrote.

CL King & Associates analyst Steve Marotta maintained a buy rating on Wolverine’s stock but lowered his 12-month price target to $29 from $35.

“Weakness across multiple channels of distribution caused Q3’s top-line shortfall and pressured sales,” Marotta wrote on Sept. 17.

Wolverine’s Q2 report, released on July 21, beat Wall Street’s forecasts with year-over-year revenue growth of 2.7 percent, but profits declined 8 percent, to $25.3 million.

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