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Why Analysts Are Split Over the State of Nike’s Business

A fury of anticipation surrounding Nike Inc.’s second-quarter results  — due after the market close Tuesday — is keeping market watchers on their toes.

Split over whether a basketball slowdown, heavy competition from Adidas and Under Armour, and slipping momentum in North American markets have taken a significant toll on the athletic giant’s sales and profit in recent months, analysts’ previews for the firm range from upbeat to less than stellar.

In a note today,  Canaccord Genuity Inc. analyst Camilo Lyon took the latter perspective, maintaining a hold rating on the stock and noting that he sees no signs suggesting demand for the brand has accelerated.

In fact, we continue to see signs of decelerating growth (i.e., weak growth from its manufacturers such as Feng Tay, weak sell-throughs of Jordan launches, broad discounting on footwear and apparel) exacerbated by a trend shift that continues to favor Adidas and to which retailers are responding in kind with increasing shelf space allocations,” Lyon wrote.

Consensus estimates peg Nike’s second-quarter earnings per share at 43 cents, a 2 cents slip from the same period last year. Meanwhile, revenues are expected to climb 5.3 percent year-over-year, to $8.1 billion.

Lyon kept his top-and-bottom-line estimates in line with Wall Street but projected that Nike’s total future orders — an indicator of overall retail demand and a gauge for sales — decelerated 2.7 percent and “North America futures likely weakened as well.”

For his part, Susquehanna Financial Group LLLP analyst Sam Poser called concerns “overdone” and said that investor expectations for Nike’s North America backlog to turn negative are “off base.”

Nike has ceded some share, but athletic footwear/apparel is not a zero-sum game,” poser wrote Monday. “While we acknowledge some of the market’s concerns, we also recognize how short-sighted they are. The core underpinnings that make Nike a premier global athletic brand are still well in place. Nike is actively protecting its brand, managing inventories via its outlet network and optimizing sales via its unmatched segmentation strategy.”

Despite his optimism, Poser is still placing his revenue and profit bets below consensus, forecasting EPS of 41 cents and revenue growth of 4.5 percent.

When Nike reported Q1, in late September, the company said its net income had advanced 6 percent year-over-year, to $1.2 billion, or 73 cents per diluted share — a significant beat against expectations for diluted earnings per share of 56 cents. Revenues gained 8 percent year-over-year, to $9.1 billion, also topping forecasts for revenues of $8.9 billion. Worldwide futures orders were up 5 percent and 7 percent excluding currency changes but missed analysts’ forecasts for growth of 8 percent and also showed ongoing deceleration.

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