Nike, a Wall Street Favorite, Gets Analysts' Pass After Miss

(Bloomberg) -- Nike Inc. is getting a pass from analysts, if not from traders, for posting its first earnings miss in seven years.

Shares of the sneaker and apparel maker were little changed in New York Friday after reporting per-share profit of 62 cents, compared with the 66-cent average of estimates. Analysts praised better-than-expected North America sales results, especially after last quarter’s miss in the home region. China sales also fared better than expected, amid the backdrop of the trade war between the U.S. and China.

Despite the bottom-line shortfall, blamed partly on higher overhead expenses and currency fluctuations, Wall Street generally viewed the report as “strong” and the costs necessary, positioning Nike well for the future, with innovation, digital, and supply chain efforts among the drivers that will support sales and earnings growth.

“The results highlight that Nike continues to execute exceptionally well on the top line with 10% FX growth ahead of high-single digit guidance, and well ahead of competition,” Ramiz Chelat, a portfolio manager at Vontobel Quality Growth, said in an email. The market will probably look past the “small” EPS miss, he said, adding that the investments in innovation and digital are helping to drive growth.

Here’s what other analysts are saying about Nike after the report.

Stifel, Jim Duffy

“Fundamental strength” in reported numbers for the fourth quarter and and for the first-quarter guide were somewhat “masked” by foreign currency (a revenue headwind of 570 basis points in 4Q and expected to be a 400-point headwind in 1Q), World Cup comparisons and investments in supply chain that are holding back gross margin gains.

Beyond the 1Q, currency and World Cup comparison headwinds “should abate.” Supply chain investments will continue into the second quarter, but should result in revenue and margin benefit later in the year and beyond.

Nike has “a strong pipeline of platform innovation” set to hit the market throughout fiscal 2020 and the company is building momentum and successfully evolving the business to a “higher-margin, higher-return model.” Stifel will continue to watch end-market demand in China.

Rates buy, price target $96

Bloomberg Intelligence, Poonam Goyal

“Nike’s reiterated 2020 outlook shows that digital and innovation efforts will continue to pay off, driving top-line growth and gross margin expansion.”

“The EPS miss in 4Q was largely due to a stronger dollar and increased investments to fund growth.”

“Innovation, speed to market and digital remain three pillars to Nike’s growth, with opportunity in women’s apparel and footwear.”

“We see the former as a catalyst to even better momentum, as the company ramps up supply to meet rapidly growing demand. The 2020 Olympics also support the outlook.

Susquehanna, Sam Poser

“Nike is stepping up investment into various areas and capabilities, including digital and supply chain, which is negatively impacting gross margin and raising SG&A levels.” These investments are a “prudent use of resources and necessary to sustain continued momentum.”

Fourth-quarter results “illuminate NKE’s progress,” while the reiterated fiscal 2020 forecast “highlights the opportunities ahead.”

“Overseas, there is little sign of a slowdown and China continues to lead the way.”

Rates positive, price target $100

Deutsche Bank, Paul Trussell

Forth-quarter revenue growth was “impressive” across all geographies.

“The company continues to balance digital growth (up 35% in FY19) with strategic wholesale partnerships (strong double-digit growth within FL, DKS, and JWN in 4Q) and is offsetting RFID/supply-chain investments and FX headwinds with higher ASPs and productivity improvements on the margin front.”

Rates buy

Nomura Instinet, Simeon Siegel

“Q saw ongoing North America top-line strength (albeit with a margin pause), with management offering optimistic commentary around their go-forward expectations.”

If Nike can achieve its fiscal 2020 sales growth target, it would be the 10th consecutive year of mid-single/high-single digit reported growth, Siegel said.

“And critically, even at its size, the company continues to drive meaningful revenue dollar growth versus peers. We continue to believe NKE’s size and budget proves a key long-term competitive advantage.”

Rates buy, price target $91

Telsey Advisory, Cristina Fernandez

Telsey moderates its fiscal 2020 EPS outlook to $2.86 from $2.99 on less-than-expected gross margin due to unanticipated currency and supply chain pressure and slightly higher SG&A. “We believe consensus EPS expectations need to be moderated as well.”

“Overall, we remain positive on Nike as we continue to view it as a winner in the consumer/retail landscape with the ability to drive continued strong sales growth and gross margin improvement through product innovation, inventory management, more direct customer engagement, and elevated experiences digitally and in stores.”

The FX headwind should ease beginning in the second quarter of fiscal 2020 and Nike can manage its supply chain if List 4 tariffs are implemented.”

Rates outperform, price target $95

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Lisa Wolfson, Richard Richtmyer

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