The Future Of Nike Depends On How It Responds To Competition

Jim Duffy of Stifel retained his Buy rating on Nike Inc (NYSE: NKE) ahead of its third quarter results on March 21, saying the company’s growth objectives through 2020 depend on either maintained share in a market that sustains a low double digit growth rate and/or gains at the expense of others.

“Accordingly, focus remains on NIKE relative to competition. We believe NIKE will need to evolve to compete more effectively and convincing evidence to make market growth and share resilience tangible is unlikely until 1HFY18 (2HCY17),” Duffy wrote in a note.

Q3 Expectations

For the third quarter, Duffy expects Nike to report $8.501 billion revenue and $0.52 EPS (consensus: $8.464 billion and $0.53). The analyst also sees -110bps gross margin pressure and 120bps operating margin drop to 12.8 percent.

“Easing FX pressure since our last publish (approximately 70bps relief) helps our confidence in above consensus FY3Q revenue estimates and may render our gross margin estimates modestly conservative,” Duffy continued.

Moreover, Duffy projects 3 percent cc futures growth, with international markets outperforming North America.

Futures To Rebound

Notably, the analyst said implied guidance for the fourth quarter revenue growth will be in excess of the futures growth rate largely due the anniversary of cancellations and returns in the fourth quarter.

That said, Duffy expects futures rebound from low-single digit growth rates in FY2018 as comparisons normalize to be more inline with high single-digits to low double- digits long-term reported revenue growth.

“The FY3Q report is likely to endorse FY17 estimates and offer preliminary FY18 guidance that supports prevailing expectations for high single digit revenue growth and low-teens EPS growth. We see this as sufficient to support the stock at current levels but, unto itself, unlikely to take shares higher,” Duffy added.

Looking ahead, the analyst is confident on the long-term secular trends for athletic and athletic-inspired footwear and apparel growth.

Shares of Nike closed Wednesday at $56.51. Duffy has a price target of $68.

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