Nike's Long-Term Innovation Story Remains Intact

Barclays remains Overweight-rated on Nike Inc (NYSE: NKE) after its better-than-expected second-quarter results as the athletic footwear maker saw growth in its underperforming basketball segment and commented positively on its innovation pipeline.

Quarter, In Review

• Q2 EPS $0.50 beat by $0.07.
• Revenues of $8.18 billion beat by $90 million.

Analyst Commentary

“We remain bullish on the shares of Nike as we believe the long-term innovation story remains intact. While recent trends have been subdued, we believe NKE could return to a path of reaccelerating growth within the next couple of quarters,” analyst Matthew McClintock wrote in a note.

Nike expects North America revenue to outpace futures driven by stronger sell through from a pull market. By category, running and sportswear grew in double digits. Region wise, the company saw strong demand in Greater China, emerging markets, Central and Eastern Europe.

The company noted that the redesign of two signature basketball shoe styles is seeing higher sell through and expects this momentum in basketball to continue and return to positive territory in second half of 2017.

Meanwhile, the analyst said the Nike’s long-term innovation pipeline remains robust with the expansion of Air Vapor Max, adaptive technology, and faster lead times.

Other Notable Metrics

Among other metrics, gross margin declined 140 basis points to 44.2 percent on FX headwinds, higher product costs, and a increased off-price sales. Inventory rose 9 percent, but North American inventory fell 4 percent as part of efforts to realign the region back to a pull market.

Shares of Nike closed Tuesday’s regular trading session at $51.79. In the pre-market hours Wednesday, the stock is up 2.53 percent to $53.10. McClintock has a price target of $65.

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