Analysts from Susquehanna Financial Group and Jefferies on Tuesday lowered their earnings guidance and price targets on Nike due to growth concerns. Susquehanna also lowered its stock rating on Nike.
Jefferies had downgraded its rating on Nike on August 21 due to intensifying competitive pressure in the U.S., driven by Adidas. Randal Konik, Jefferies’ analyst, also said his team was concerned at the time about greater marketing spend that could erode Nike’s operating margins, lackluster futures order trends as well as its premium stock valuation relative to peers.
“Since then, we’ve looked beyond the U.S., and included Europe in our webscrapes, which show that competitive threats are rising abroad as well,” wrote Konik in a note issued Tuesday. “We have also updated our North American webscrapes and survey work, which show Nike continuing to cede share to Adidas at a rapid clip. Taken together, this makes us increasingly cautious on the name.”
Updated survey efforts, marked by the mentions of Nike in “best sellers” in the run category, show Nike’s running share loss to Adidas accelerating. Webscrapes also found Nike’s SKUs counts decreasing and promotions in the running category increasing.
Jefferies’ note also showed that new data from Europe likewise finds Adidas gaining traction in running on Nike, as well as Nike facing greater discounting in that category. Other factors playing a role in Jefferies’ lowered estimates and price target are signs that Nike’s shares are “peaking” in basketball with Adidas and Under Armour both gaining modest share recently, as well as the recent disappointing quarterly results from Foot Locker and Finish Line.
Jefferies’ price target on Nike was lowered to $49 from $60 while its rating was maintained at “hold.” Jefferies now expects Nike to earn $2.26 in its current fiscal year, down from $2.40 previously and Wall Street’s consensus estimate of $2.41.
Nike closed at $53.33 on Tuesday, down 17 cents.
Susquehanna analyst Sam Poser downgraded Nike on Tuesday from “positive” to “neutral.” Poser updated his Nike price target to $54 a share from $64 while reducing his FY19 EPS estimate from $3.03 to $2.84.
Susquehanna said its reductions were based on store checks and subsequent concerns that the North American and European businesses are decelerating as some key items, especially in the basketball category, have underperformed, leaving excess inventory in the marketplace.
“NKE appears to have misjudged the appetite for some key marquee basketball product which has resulted in creating a push model (supply above demand) versus the expected pull model (supply below demand),” wrote Poser in his note.
He noted that recent proprietary checks indicate an “inordinate amount” of signature basketball (KDs, Lebrons, Kobe) and, to a lesser extent, Jordan retro product is being sold at Nike Factory stores. Added Poser, “We do not believe the basketball business is dead. Rather we believe a recovery in the basketball category in North America may take longer than we initially anticipated as excess product is cleared. We are hopeful that Nike reduces the number of marquee basketball launches, and the overall supply of marquee basketball product, going forward.”
The EPS reductions were also based on some recent commentary from Foot Locker, Dick’s Sporting Goods, Hibbett Sports and Finish Line as they released quarterly results and consequently reduced their annual guidance.
Power also expects Nike will provide a new five-year growth plan, which will push out its $50 billion revenue target beyond 2020, either when it reports first-quarter earnings on September 26 or when it holds its Investor Day on October 25.
Poser added, “We do believe Nike will resolve the problems, but we do not have visibility as to when.”
Photo courtesy Nike
