Nike Analysts Brush Off Poor Results, Tout E-Commerce Strength

(Bloomberg) -- Nike Inc. shares fell premarket after the athletic footwear and apparel company posted a rare quarterly loss on disappointing sales, showing that even a top brand isn’t immune to the pain caused by the pandemic.

This is Nike’s first adjusted loss per share since at least 2009, and only the fourth time it missed Wall Street’s estimate on the metric for the same period, according to Bloomberg data. However, similar to many retailers, e-commerce growth of 75% was a “bright spot,” Consumer Edge Research’s Carson Barnes said.

While results disappointed investors, analysts held fast to their ratings, with no downgrades issued, and were quick to point out that the maker of Air Jordan sneakers is well positioned for long-term growth, given its strong brand recoginition and its ever-improving digital capabilities.

Shares closed on Thursday $101.40, with the stock fully erasing a pandemic-related beating after gaining nearly 6% for the four days heading into last night’s results. Shares are down about 3% in trading before the opening bell.

Here what analyst are saying about the results:

Telsey Advisory, Cristina Fernandez

The fourth-quarter’s “sizable” impact on sales and profit from store closures and a 50% reduction in wholesale shipments “should mark the worst of the pandemic.”

Despite sales and operating margin missing her estimates by a wide margin, Fernandez pointed out several positives in the quarter, including a sales recovery in China, higher digital sales growth and “strong membership sign-ups.” Furthermore, Nike is seeing positive growth across regions since stores reopened in mid-May.

The trend toward digital should continue to “drive sales and operating margin expansion over the next several years,” Fernandez said. She sees additional upside for shares over the next 12 months driven by “relatively strong demand for athletic apparel and footwear, a proven execution track record, and a steady stream of product innovation.”

She rates the stock outperform. Price target $110.

Susquehanna, Sam Poser

“Investors should look past the challenges that NKE will face over the next two quarters and focus on the unmatched global strength of the Nike brand, digital prowess, best-in-class customer engagement, unrivaled product innovation, and fortress balance sheet.”

The company continues to position itself for “long-term success,” as plans to “accelerate the pace of its Consumer Direct Offense via enhancements of the company’s already world-class digital capabilities are underway.”

Poser cut his estimates based on the “weaker-than-anticipated fourth-quarter results and Nike’s “conservative” first-half outlook, which he says “bakes in a worst-case scenario.”

Rates positive, price target $130.

What Bloomberg Intelligence Says:

“Nike’s commitment to its fiscal 2023 targets despite the disruption from Covid-19 shows strength in the brand, driven by its strategy to emphasize digital, speed and innovation”

Analyst Poonam Goyal

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Stifel, Jim Duffy

“Sightlines to normalized inventory in F2Q is better than feared.” This, along with “SG&A discipline,” increases Duffy’s confidence in the fiscal 2022 margin structure, he wrote.

“Most importantly, digital strength (>100% direct digital growth in May and June) and endorsement of a more rapid pivot to a digital centric model supports our thesis of channel shift and margin benefit,” as digital direct per unit economics have higher gross margin and twice the operating profit of wholesale, which suggests a “leverage opportunity” as the channel grows.

“We see Nike uniquely positioned to capitalize on a shift to digital consumer engagement.” Rates buy, price target $111.

Deutsche Bank, Paul Trussell

“We believe 4Q matters little in investors’ minds and we turn our attention to product momentum and long-term earnings power, which are both quite positive.”

Higher margins will ultimately be driven by “robust” digital growth, while the Jordan franchise and innovation in running continue to result in “strong sell-through” of inventory.

However, Trussell remains on the sidelines given that “the near- to medium-term remains in flux,” with wholesale facing “substantial challenges” and currently representing nearly 70% of Nike’s North America and EMEA sales mixes.

Rates hold.

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