Morgan Stanley said in a research note on Monday that, of the athletic wear retailers, Nike Inc (NYSE:
NKE) is working hard to get its inventory levels back in shape
and Under Armour Inc (NYSE: UA)'s footwear
momentum is slowing. However, the firm is of the view adidas AG (ADR) (OTC: ADDYY) remains the brand with the most momentum.
Supply Chain Bottoming
Analysts Jay Sole believes supply chain trends may have troughed, given the sales drop and shipment guidance miss reported by
key Nike supplier Feng Tay for the third quarter and the 5 percent fourth-quarter footwear production growth guidance issued by
it.
Clearing Inventories
Morgan Stanley noted that Nike has been cancelling deliveries to retailers and declining to take overs in the last few months,
as it seeks to overcome oversupply problems. Consequently, the company's U.S. inventories are now cleaner, down 0.8 percent
year-over-year, the firm noted.
Related Link: Nike
Beats Out Under Armour For Chelsea Football Apparel Deal Worth $1.1 Billion
Credible Threat From Adidas
However, the firm believes Nike's recovery could hit the roadblock as Adidas breathes down its neck, snatching share from it in
the U.S. market. Estimates pitch adidas' U.S. footwear sales growth at 42 percent year-over-year, backed by strong product offering
with styles such as Yeezy by Kanye West and NMD by Pharell Williams.
Although Morgan Stanley concedes that Nike's pipeline is stronger too, it expects a rebound in Nike's performance versus adidas
at the earliest by the spring of 2017.
Premium Troubles For Under Armour
While commending on Under Armor's Speedform premium range of U.S. running footwear business, Morgan Stanley sees soft order
growth due to falling ASPs. The firm expects the new $99.99 Slingride to be a potential offset, but sees at 20 percent markdown in
10 of 20 styles.
Moreover, the firm is of the view that Slingride sales may be cannibalizing sales of Under Armor's higher priced knit shoe, the
Slingshot. Unless the company competes better at a premium price, Morgan Stanley believes, Under Armour will miss Street
expectations.
Outlook for Suppliers
As far as suppliers are concerned, Morgan Stanley is Overweight on Feng Tay, Toung Loong Textile and Eclat. The firm expects
near-term trends to be volatile and that it would take at least another quarter for industry inventory levels to normalize.
However, the firm believes Taiwan suppliers' niche/premium/new products being favored by branded customers and order levels for
these companies improving over the coming quarters.
Related Link: Under
Armour's Growth -- The Source Of Buy-Side Debate
Ratings, Price Targets
- Adidas: Equal Weight.
- Nike: Equal Weight; $60.
- Under Armour: Underweight; $31.
In pre-market trading, shares of Nike were down 0.27 percent at $51.48 and Under Armour was down 0.83 percent at $38.17.
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Latest Ratings for NKE
Date |
Firm |
Action |
From |
To |
Oct 2016 |
Susquehanna |
Initiates Coverage On |
|
Positive |
Sep 2016 |
Guggenheim |
Initiates Coverage on |
|
Buy |
Sep 2016 |
UBS |
Maintains |
|
Buy |
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NKE
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