Neither Tariffs Nor Currency Fluctuations Can Touch Nike: Analysts

Despite an influx of macroeconomic uncertainty borne of the U.S.-China trade war and looming geopolitical pressures, analysts are unanimous that Nike Inc. will end its fiscal year on a high note.

Ahead of the company’s fourth-quarter earnings results — due after the market close on Thursday — several market watchers are predicting the brand will ward off currency fluctuations (even if it yields a small superficial hit to profit results) as well as largely sidestep President Donald Trump’s next round of threatened China tariffs, which are expected to hit footwear if they’re enacted this summer.

“[Nike’s] underlying momentum remains exceptionally strong,” wrote Susquehanna Financial Group analyst Sam Poser on June 18. “Digital prowess, a robust product pipeline and improving speed-to-market capabilities should continue to drive high-single-digit FX neutral revenue growth and margin expansion for the foreseeable future.”

While much has been said of the potential for Trump’s proposed fourth tranche of tariffs to have significant consequences for footwear and fashion retail, Poser pointed out that, although Nike manufactures 25% of its footwear and apparel in China, he’s learned that just “a small amount of that product [less than 10%] is imported to the U.S.” (The fourth tranche of tariffs is part of a yearlong trade dispute between the United States and China that has already seen the U.S. slap new levies on $200 billion in Chinese imports. China responded with tariffs on $60 billion in U.S. imports.)

“Tariff concerns are overblown,” Poser added.

Similarly, Canaccord Genuity Inc. analyst Camilo Lyon predicted a “strong finish” to Nike’s fiscal 2019, with accelerated growth into 2020.

“Our channel checks coupled with robust mid-single-digit comp growth from retailers like Foot Locker and Hibbett Sports indicate increasing scale and strength of sell-throughs in several key footwear platforms [such as] VaporMax, Air Max 270/720 and React,” Lyon wrote on June 19. “In addition, we expect Jordan to show further improvement as discussions with our industry contacts indicate sell-throughs continued to strengthen on the back of a strong launch calendar.”

Although he believes the brand’s market share gains in regions such as Europe, the Middle East and Africa are being “partially masked by heightened FX headwinds,” Lyon said he expects currency pressures to dissipate significantly in Q1 2020 as new hedges take effect.

Overall, consensus estimates peg Nike’s Q4 profits at 66 cents per share — a dip of 4% from the previous year due mostly to currency changes — on sales of $10.2 billion, representing a 4% growth over 2018.

“Nike continues to execute solid strategy and supply its connected consumers with market expanding, innovating product — including increasingly for women — as it outperforms yet trades at a lower premium (14%) to peers such as Adidas Group (26%),” wrote Wedbush analyst Christopher Svezia, who reiterated an “outperform” rating on the brand’s stock.

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