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Nike Issues Coronavirus Warning, UBS Sees Zero Long-Term Impact

Nike Inc (NYSE: NKE) said Tuesday it will close around half of its total store fleet in China due to the coronavirus outbreak, while other locations are expected to

Benzinga · 02/05/2020 16:01

Nike Inc (NYSE: NKE) said Tuesday it will close around half of its total store fleet in China due to the coronavirus outbreak, while other locations are expected to see lower traffic. UBS analyst Jay Sole said this will have zero impact on the sell-side firm's long-term bullish bullish thesis on Nike. 

'Material Impact' From Coronavirus

The coronavirus will have a "material impact" on Nike's operations in Greater China in the near-term, the company said in a Tuesday press release.

Yet the company also cited ongoing "strong" momentum with the Chinese consumer and in its online store.

The financial impact on Nike's fiscal third-quarter earnings is projected at a 10-15-cent EPS miss on consensus estimates of 70 cents, Sole said in a Wednesday note.

This is based on several key assumptions, the analyst said:

  • The coronavirus only impacts Nike's business in half of January and all of February.
  • The impact is strictly limited to Greater China.
  • The digital business in China continues to grow at a "solid" double-digit rate.
  • Nike store sales in China comp down 70% in the back half of January and all of February.
  • Nike can identify some SG&A savings to offset losses.

UBS Long-Term Bullish On Nike

The coronavirus has zero impact on UBS' long-term bullish stance on the stock, Sole said.

The company's focus on adapting its business model and investing in product innovation, supply chain and online sales make it "worth much more long-term," the analyst said.

UBS maintained a Buy rating on Nike's stock with an unchanged $136 price target.

Nike could see its Greater China fiscal third quarter sales drop at a low-to-mid-teens rate versus typical growth in the low-20% range, Sole said.

The math behind the multiple assumptions suggests an EBIT dollar decline of $230 to $250 million, including $65 million of SG&A savings.

The math also implies Nike's global fiscal third-quarter sales will grow by just 2% versus prior expectations of 8%, according to UBS.

Nike shares were trading down 1.36% at $100.02 at the time of publication Wednesday.

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