Nike ‘Crushed It’ and Now Its Shares Are at a Record High

(Bloomberg) -- Nike Inc. shares are trading at a record high Wednesday after fiscal first-quarter results “crushed it,” as Jefferies analyst Randal Konik put it.

With impressive strength in sales and gross margins, Nike was able to report quarterly earnings per share that topped even the most bullish Wall Street estimate -- by 13 cents. The beat was especially welcome after the sneaker giant missed the consensus earnings estimate last quarter.

Nike maintained its year revenue growth target of high-single digits, but boosted its gross margin expansion forecast to 50 to 75 basis points. It had been projecting a 50-basis point increase. “Accelerating investments in digital, supply chain, and product innovation are paving the way for a bright future of continued top-line growth and margin expansion,” Susquehanna’s Sam Poser wrote.

Shares rose as much as 6.4% Wednesday morning, to $92.79, topping their previous intraday high of $90 from April. Today’s advance is the best single-day gain December.

Here’s more of what Wall Street had to say following the earnings report:

Stifel, Jim Duffy

• “Balanced global strength in FY1Q is further evidence of strategic inputs coalescing to drive value creation”
• The strength in gross margin underscores the quality of growth, while strategic initiatives are suggestive of a “long runway for further improvement” as Nike transforms its business to a “higher margin, higher return model”
• Within 12-18 months, Duffy expects gross margin can return to 46% plus
• Duffy sees a “multi-year period” of EPS growth in the high-teens to low-twenties
• Rates buy, boosts price target to $106 from $96

Macquarie Research, Laurent Vasilescu

• Digital is the key growth driver for Nike, increasing across all regions with North America up 30%, EMEA up double digits, China up over 70%, APLA up nearly 50%.
• By region, EMEA continues to “defy expectations” with 12% constant currency revenue growth in the quarter on top of up 9% in the first quarter of fiscal 2019, and the company continues to extend its lead in the region as it is rated the number one favorite brand in all key cities, according to the company
• The boosted gross margin forecast, despite incremental tariffs and currency headwinds, was “impressive,” although Vasilescu’s estimate, which calls for 80 basis points of expansion, is even more bullish than the company’s forecast
• Rates outperform, price target to $98 from $89

Bloomberg Intelligence
“Nike’s strong fiscal 1Q results, led by a double-digit sales gain in constant currency and healthy gross margin expansion, show that it remains well-positioned to deliver on its five-year plan”. “Product innovation, speed to market and digital are catalysts for superior growth to stretch into 2020.”
--Analyst Poonam Goyal, click here for note

Susquehanna, Sam Poser

• Momentum across geographies, categories and channels remains exceptionally strong, despite macroeconomic headwinds, including currency, tariffs, geopolitical tensions
• While first-quarter North America revenue was below Street estimates, growth is expected to accelerate through the rest of fiscal 2020
• “Compelling initiatives and strategic investments, particularly in digital, reinforce Nike’s evolution and should lead to sustainable high-single digit FX-neutral growth and margin expansion”
• Nike continues to take share by delivering more compelling innovation at a faster pace than competitors, and continuing to enhance customer engagement via digital platforms
• Rates positive, raises price target to $106 from $100

Cowen, John Kernan

• “Management’s confidence seems as high as we can remember as investments continue to generate record high returns on capital”
• Nike gross margin up 150 basis points is “indicative of the power of Nike’s innovation and scaling digital platforms and apps”
• The Nike app is the fastest growing platform and grew nearly triple digits in the first quarter; given the success, Nike pulled forward the app launch in China to late second quarter
• Rates outperform, price target raised to $103 from $100

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, Scott Schnipper

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