Nike Inc (NYSE: NKE) shares are down on Friday after reporting its second-quarter earnings print, the last release of CEO Mark Parker’s tenure. He has served as CEO since 2006 and will be replaced by John Donahoe next month.
Nike reported quarterly earnings of 70 cents per share, which beat the analyst consensus estimate of 57 cents. This is a 34.6% increase over earnings from the same period last year. The company reported quarterly sales of $10.33 billion, which beat the analyst consensus estimate of $10.07 billion. This is a 10.2% increase over sales of $9.374 billion the same period last year.
Room For Growth Persists
UBS analyst Jay Sole expects Nike shares grind higher, albeit slowly.
“Nike’s investments in product innovation, eCommerce, China, emerging markets, women’s, and supply chain speed are paying off,” he wrote in a note.
With $41 billion in sales, the analyst acknowledges that many bears argue Nike is simply too big to grow, but given the brands relatively low worldwide market share in footwear and apparel, he believes there is still room for growth.
“We note Nike has only 9% (of) global footwear market share and just 1% (of) global apparel market share," he wrote. "This, to us, implies much opportunity to grow further.”
UBS maintains a Neutral rating and raised its price target from $97 to $103.
Jordan Brand, Sportswear Driving Growth
Bank of America analyst Robert Ohmes says Nike’s sportswear and Jordan brand business should remain global growth drivers despite tariff headwinds.
Ohmes says sportswear growth continues to be led by strength in its Nike Air Force 1 franchise, women’s sportswear apparel momentum through Nordstrom, Inc. (NYSE: JWN) Instagram and Nike Direct, and the company’s move to scale Air max and React to sub $100 price points.
Nike also saw a milestone with its Jordan brand, delivering its first $1 billion quarter ever, and Ohmes expects this to continue with increased distribution and new styles and colors of Air Jordan 1s.
Bank of America maintains a Neutral rating with a $105 price target.
High Expectations Temper Gains
Wells Fargo analyst Tom Nikic took a more cautious stance on Nike as the company faced an “extremely high hurdle” heading into its earnings report.
“While the business has momentum and our focus on valuation has unfortunately caused us to miss a significant re-rating of the stock, we still think it’s hard to argue that Nike is a ‘new money’ name at 30x FY21E EPS,” he said.
Wells Fargo maintains an Equal-Weight rating and raised its price target from $91 to $99.
Nike's Unparalleled Momentum
Cowen analyst John Kernan continues to be bullish on Nike’s future, reiterating an Outperform rating with a $106 price target.
Kernan says Nike’s guidance feels conservative and stock momentum will likely continue due to the brands innovation across footwear and apparel. “There are few brands with more momentum globally than Nike and the company’s financial model continues to strengthen,” he said.
The analyst also expects significant innovation from the company, heading into the 2020 Olympics, set to take place in Tokyo.
Margin Concerns To Dissipate Over Time
Morgan Stanley analyst Kimberly Greenberger says although all geographies beat consensus estimates, strength in Greater China was the standout metric of the second quarter report, where it saw sales grow 23% year-over-year.
Greenberger suspects bearish investors may point out that the company’s third-quarter margin guidance is disappointing, but highlights Nike has “consistently reported results that are in-line or above management guidance, and gross margin expenses that lessen and dissipate over time - tariffs and FX pressure.”
Morgan Stanley maintains an Overweight rating with a $119 price target.
NKE Price Action
Nike's stock traded down 1.5% to $99.60 per share at time of publication.