Nike Future Orders Slow

For the period ending Nov. 30 2014, the company said net income grew 23 percent to $655 million, or 74 cents per diluted share, compared with $534 million, or 59 cents per share, in the year-ago period. Analysts had predicted earnings of 70 cents a share. Overall revenues at the athletic giant increased 15 percent to $7.4 billion. Footwear saw growth in every market, with the largest sales gains in North America, Western Europe and China. North America led the way, with footwear sales of $1.9 billion for the quarter. Future orders for December 2014 to April 2015 were up 11 percent, excluding currency changes, the lowest increase in a year. Analysts had expected futures to grow 11.3 percent.

“Our strong second quarter results once again demonstrate Nike is a growth company”, said Mark Parker, president and CEO. “The power of our portfolio continues to unlock growth as we keep a laser focus on our biggest opportunities”.  That sales boost was due in part to Nike shifting its focus to high-end, ‘premium’ apparel, which is exactly the way luxury designer brands make their money. In fact ‘premium’ was the word Nike’s CFO used on the earnings call to describe what’s going on in Nike’s brand and pricing strategy. Below are highlights along with current ratings and price targets.

Deutsche Bank: Buy, $105 price target. “With NKE stock perched near all-time highs, clearly, the bar into the print was set high. While there are many moving parts to the story, overall, the company met expectations for its core business, though FX does shift to a headwind (as expected). Importantly, FY (May 2015) EPS plan remains ‘largely in-line’ with the prior ~20 percent y/y guide, though new, incremental FX pressure to revs./GM & an SG&A bump are now offset by mgmt. expectations that core, local revs. are strengthening”.

Credit Suisse: Outperform, $105 price target. “Nike continues to deliver, with strong demand trends across regions and a return to margin expansion following a two-year period of declining margins. We continue to see opportunity for Nike to sustain low-double digit revenue growth, 40-50bp of operating margin expansion annually, and mid-teens or better earnings growth, making Nike one of the strongest large-cap investment opportunities in the global consumer apparel landscape. We adjust estimates to reflect ramping impact of foreign currency, but maintain our $105 target price”.

Morgan Stanley:  Overweight, $105 price target. “The stock may lag short term; we think this presents a buying opportunity: The market may have been looking for 100-200 bps higher futures growth. We think this was an unrealistic expectation and not an indication of any negative change in Nike’s revenue growth momentum. A potential stock price drop is a chance to buy a name we believe is ultimately headed much higher”.

Barclays:  Overweight, $100 price target. “Despite looming FX headwinds, core trends remain strong for Nike, particularly in its key regions. Specific to China, we remain impressed with the transition in this region, evident by both sales and futures growth, and we remain confident in the company’s ability to drive improved profitability for both its wholesale partners and own doors».

Citi:  Buy, $111 price target. “NKE delivered another beat, ~maintained FY15 guidance, & accelerated China futures, demonstrating the ability to continue driving the category offense & brand messaging across global markets, in our view. Outside of f/x, management remains focused on executing on their long-term strategy, driving innovation in product, distribution, & supply chain, & through continued investments in long-term growth through DTC expansion & demand creation. We continue to see further potential upside to our estimates from top-line leverage & repurchases, which should drive the stock over the next 12 months».