Analysts on Nike: We See Short-Term Disruption, Long-Term Dominance

As one of the few firms uniquely positioned to weather retail turbulence, Nike Inc. continues to rank high among analysts as it forges ahead with its hyper-digital direct-to-consumer strategy.

The Beaverton, Ore.-based athletic behemoth is scheduled to report first-quarter results after the closing bell Tuesday and market watchers are nearly unanimous in their belief that it will be an okay-to-challenging period — but the tides will shift in favor of the brand in the not-too-distant future.

“[We are] neutral on Nike Inc. for Q1 and positive long-term,” wrote Jessica Ramirez and Jane Hali of Jane Hali & Associates LLC in a distribution note today. “The brand continues to resonate with consumers and is notably following consumer and retail trends.”

Nike made headlines late last month when Susquehanna Financial Group analyst Sam Poser revealed in a note to clients that the brand would sever ties with nine wholesale accounts, including, Zappos, Dillard’s, Belk and Boscov’s. Nike has since confirmed its plans to continue to fortify its DTC business and lean deeper into the partnerships that it has determined are mutually beneficial.

Poser, at the time, cast the move as an ongoing positive for the brand, which he cast as “[taking] more control of a destiny.”

Jane Hali & Associates said Monday that they, too, view Nike’s move as “a long-term positive” but signaled caution on channel disruption stemming from changes to the brand’s wholesale strategy as well as the ongoing pandemic fallout and store closures.

As of August 19, Poser has maintained his “positive” rating on Nike’s stock and increased his fiscal 2021 and 2022 earnings per share estimates from $2.46 and $3.64 to $2.63 and $4.03, respectively. Poser also increased his price target from $130 to $150.

“We think improving trends, cost savings from upcoming layoffs of 7% to 10% of its workforce as focus rapidly moves further to DTC, and FX tailwinds will drive Nike beyond its [fiscal year] 2023 $50 billion revenue target,” he wrote in mid-August.

When Nike announced fourth-quarter results in June, it also unveiled the next phase of its so-called Consumer Direct Offense strategy: Consumer Direct Acceleration, which would carry forward plans it announced in 2017 as well as some new updates.

With CDA, Nike intends to ramp up investments in e-commerce and technology, as well as simplify its “consumer construct” of men’s, women’s and kids’ businesses. Those changes would also result in a number of layoffs, the company had said, later confirming in a WARN notice that it intends to layoff 500 or so employees at its corporate headquarters, beginning Oct. 1.

Ahead of tomorrow’s results, consensus bets placed Nike’s Q1 sales at down 15% to $9.1 billion with EPS shedding nearly 50% to 44 cents per share.

When Nike reported Q4, it posted an unexpected loss of 51 cents per share, marking only the second time in eight years that it has missed earnings estimates. Revenues dropped 38% to $6.3 billion, which the brand attributed to the widespread closures of owned and partner stores across North America as well as Europe-Middle East-Africa and Asia-Pacific-Latin America countries. Analysts were forecasting earnings of 9 cents per share and sales of $7.53 billion.

As of 1:45 p.m. ET, shares for Nike Inc. were down 1.4% to $113.

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