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Why Experts Still Can’t Agree on What’s Wrong, Right With Nike’s Business

While they are generally more upbeat following Nike Inc.’s second-quarter earnings release Tuesday — which saw the firm top sales and profit forecasts — analysts continue to be split over what makes them bullish and bearish about Nike’s business going forward.

Nike’s solid Q2 print is just another example of how the company remains ahead of consumer expectations,” Susquehanna Financial Group LLLP analyst Sam Poser wrote today. “Yes, by the company’s own admission, innovation and value fell short of typical Nike standards over the past year, particularly in signature basketball. However, Nike rarely remains complacent.”

While Nike’s futures orders continued to show deceleration — Nike said its global futures were up 2 percent but down 4 percent in North America — Poser echoed management’s earlier sentiments that futures orders are less indicative of growth than they had been in the past.

“Mistakes have been corrected and the culture of innovation is producing wins across all facets of the business including basketball and sportswear, which grew at a high teens pace in Q2,” Poser writes. “We continue to stress that the [futures] number is less relevant.”

Conversely, Canaccord Genuity Inc. analyst Camilo Lyon maintained a hold rating on Nike’s stock and suggests that futures numbers are more indicative of the state of Nike’s business than the firm has implied.

Most concerning within futures was North American futures [which are] likely a result of the competitive landscape shifting toward Adidas and to a lesser extent Under Armour,” Lyon wrote today. “Management made an effort to control the messaging by de-emphasizing the correlation between futures and reported sales growth; however, with direct-to-consumer at 27 percent of the mix, futures still represent a leading indicator for demand from its wholesale partners.”

Similarly, Cowen and Co. analyst John Kernan said he remains on the sidelines with Nike — but for different reasons.

We believe multiple expansion will be capped in the near-term as consensus estimates are too high on a multiyear basis and uncertainty over border adjustments and FX will continue to weigh,” Kernan writes.

For her part, Citi Research analyst Kate McShane said she is more upbeat on Nike following Tuesday’s report and conference call.

We reiterate our buy [rating] on Nike [due to] a likely bottoming of the signature basketball category; what appears to be maintenance of global share in a growing category; and interest from long-only accounts to buy this stock in the low [$50-price-range],” McShane writes. “Over the long term, we remain confident in Nike’s global secular growth story, supported by stronger growth in Europe, China, Japan, and [Emerging Markets], positive growth in North America and supply chain innovation.”

Nike’s management maintained its full-year guidance and continues to expect reported revenue growth in the high single-digit range although CFO and EVP Andrew Campion said FX headwinds from further strengthening of the U.S. dollar have put downward pressure on the firm’s second half revenues.

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