As Nike Inc. is poised to post fourth-quarter financial results on June 28, Telsey Advisory Group analyst Kelly Chen lowered her sales-growth estimate to 6.3 percent, from a prior 7 percent.
Chen also reduced her earnings-per-share estimate to 50 cents, from 53 cents, which is just above FactSet’s consensus estimate of 49 cents. Earnings per share for the fourth quarter of last year came in at 49 cents.
At the opening bell, shares of Nike rose 0.5 percent to $55.01. Their 52-week high is $68.19, and the low is $47.25.
Chen has the sportswear giant pegged to deliver $8.3 billion in sales. And despite the tempered estimate, she is maintaining an “outperform” rating on the stock. And in a separate report last week, another analyst noted Nike’s strong operating results, which are expected to benefit the bottom line amid a challenging retail market.
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“Although athletic and active were outperforming categories, we believe the overall retail environment was challenged by weak mall traffic, unfavorable weather and store consolidation within the sporting-goods sector,” Chen said. “On a constant currency basis, we are modeling a sales increase of 10 percent, which bakes in a 350 to 400 [basis point] drag from [foreign exchange costs].”
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The analyst is expecting gross margin to show a 35 basis point gain, “as the benefit from higher prices and a mix shift to [direct to consumer] are partially offset by higher markdowns, higher labor costs and [foreign exchange impact].”
Chen said the broader market challenges include the closure of The Sports Authority. Still, she said she is “bullish on the active/athletic category and believes that Nike is still gaining share, particularly in markets like China, where consumers are making a lifestyle change and investing more in athletic footwear and apparel.”
“There’s also been some concern regarding the slowdown in the basketball business, but we point out that brand Jordan remains strong and believe that the company has enough levers to hit its [fiscal year 2017] targets,” Chen said, adding that she lowered the price target on the stock to $69 from $72.
In a separate report from Thomson Reuters’ Jharonne Martis, the analyst said that “Nike’s operating profit margins have remained stable over the past three quarters, after it surged in 2014-2015,” and noted that they are currently at 14 percent, which is “above the industry average.”
“Consumers perceive the Nike brand as high quality, and therefore Nike doesn’t have to offer discounts,” Martis said. “During promotional periods, including Black Friday, other retailers offer steep discounts to lure shoppers into their stores. However, Nike doesn’t, because they don’t have to. The brand enjoys a loyal customer base that appreciates its quality. Therefore, Nike’s improving margins suggests that Nike has more pricing power, and enjoys better margins.”