Will Cyclical Slowdown Continue To Plague Nike?

Brean Capital’s Eric Tracy expressed continued concern regarding Nike Inc (NYSE: NKE)'s ongoing cyclical slowdown in North America, which offsets international growth levers to a large extent while upside catalysts appear to be limited over the near term.

Tracy maintains a Hold rating on the company.

Risk/Reward Balanced

Although the recent pullback has improved the risk/reward profile, the analyst believes a combination of near-term headwinds and limited upside catalysts create a relatively balanced risk/reward.

Q2 Guidance Achievable

Tracy also pointed out that management set a low bar for Q2, and the revenue +MSD guidance was achievable, despite checks suggesting domestic trends continue to be choppy and several of the recent Jordan launches have received tepid responses.

Growth in North American futures significantly decelerated in Q1, driven by a market resent, although the analyst believes Nike’s revenue growth could outperform over the next few quarters, catalyzed by the at-once/reorder business and the growing DTC mix.

Margin Pressure

In addition, gross margin pressure is expected to continue into the second half and remain a headwind through FY 2017, “with pressure going beyond discrete items (FX, shift of operating overhead into COGS, higher mix of off-price sales) called out in 1Q.”

Tracy noted that checks also indicated promotional activity had been stepped up during the holiday season.

At last check in Monday's pre-market session, Nike shares were slightly up (up 0.06 percent) at $50.95.

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