When Nike released its earnings at the end of March, investors punished the brand with a selloff that resulted in its stock falling by nearly 5 percent on an apparent weakness in North American sales. However, stock analysts are still bullish when it comes to Nike (NKE) stock and the effect its revised business plan might have on its retail partners.
To start, Nike ranked well among male consumers in Canaccord Genuity’s latest athletic apparel survey, released Wednesday. Among 725 men who had made an athletic apparel purchase in the last six months, Nike significantly outperformed its closest competitors when it came to innovation, fashion, and future purchase intent, and as a result, analysts at the firm believe Nike should fare well in the immediate future. Forty-two percent of the men surveyed called Nike most innovative, with Adidas following behind at 35 percent. When it came to fashion, 42 percent ranked Nike the highest, with Adidas at 37 percent and Under Armour at 14 percent. For future purchase intent, 41 percent of men said they’d make Nike their next apparel purchase, compared to 15 percent who said they’d pick Under Armour.
“[Survey] responses support our positive view on buy-rated NKE as it continues to be the leader in all key category questions—innovation, fashion, and intent to purchase,” Canaccord Genuity analysts wrote in a report emailed to Sourcing Journal.
The only measure in the survey that Nike did not lead—value—was led by Adidas with 43 percent of men responding that they considered it the brand that offered the most value. Nike fell to second place, with 32 percent approval among men.
However, a compelling area of growth for the brand appears to be among middle-class and affluent males (with annual incomes between $60,000 and $150,000). Canaccord Genuity analysts found the cohort increasingly more likely to name Nike most innovative compared to prior surveys—to the detriment of Under Armour, which saw its mindshare gains relegated to the $60 and less price range and among an older demographic.
Another perspective on Nike’s financial future comes from Jonathan Komp, a senior research analyst at Baird, a wealth management and private equity firm. Komp doesn’t see the same weakness in North American sales that investors did in March, saying the brand’s growth in the region was cause for optimism, despite it being outpaced by growth in Asia. Nike totaled $3.61 billion in North American sales in Q3, up 7 percent over the comparable time period in the previous fiscal year.
“Overall we believe the disclosures demonstrate improving fundamentals, with strengthening premium footwear sales combined with gross margin improvements funding corporate overhead investments (data/analytics) and higher wages,” Komp wrote in a report emailed to Sourcing Journal.
This position is supported by the fact that sportswear was the primary driver for the brand, followed by the running category and Jordan footwear, and that all of those categories were up in North America. From that perspective, Komp says Nike’s near-term and long-term outlook is strong and likely to provide some limited EPS upside, despite the brand’s current interest in investment.
However, overall, Baird tempered those expectations in the face of global uncertainty.
“While we continue to have a positive outlook for NKE’s near-term fundamentals and longer-term growth potential, we think NKE’s current relative valuation premium of almost>70% (near peak, with short interest also near historical lows) may not be sustainable given some global macro uncertainty and with near-term strategic investments potentially limiting earnings upside as was the case with the Q3 report,” Komp explained.
As such, Baird cautioned investors into rushing into purchasing Nike stock. Instead, the firm rated NKE as “neutral” and advised purchasing shares in the brand when its stock price was closer to the mid-$70’s.
Nike shares were trading at $86.24 at publication time.
