Analysts moved quickly Wednesday to slash their stock price targets on Nike Inc., after the company reported earnings that beat estimates, but offered a soft outlook for North American orders.
Analysts at Credit Suisse lowered their price target to $60 from $63, but maintained their outperform rating on the stock NKE, -4.15%
Cowen & Company analysts moved their price target to $59 from $63, citing “clear weakness in North America demand from wholesale partners, door closures, uneven traffic.” They also kept their outperform rating.
Nike reported an 8% year-over-year revenue increase to $9.06 billion from $8.41 billion. Earnings came to 73 cents per share, up from 67 cents last year. FactSet estimates were for revenue of $8.87 billion and earnings of 56 cents per share.
Nike expects second-quarter revenue growth in the mid-single-digit range, “at or slightly below our rate of reported futures growth, reflecting FX headwinds,” said Chief Financial Officer Andrew Campion on the earnings call, according to a FactSet transcript.
Futures orders globally are up 5%, with China (15%) and Japan (26%) the strongest markets. But North American futures orders are only up 1%.
Going forward, the company said it would change its approach to future orders reporting.
“Futures will first be referenced in the context of the broader guidance that we provide on the earnings conference call, rather than as a standalone forward-looking metric in our earnings release,” said Campion. “We will also continue to report futures in detail in our quarterly filings with the SEC.”
Due to the company’s “evolving business mix,” Campion said the ties between reported futures and reported revenues have weakened.
Nike shares are down 2.7% in Wednesday trading.
“Nike’s fiscal first-quarter was peppered with red flags,” said Canaccord Genuity.
Analysts cited gross margin results, down 200 basis points, that were “far weaker” than expectations. And Canaccord called the North American futures result a “disconcerting surprise… likely a result of the competitive landscape shifting toward Adidas ADS, +2.13% and Under Armour UA, +0.45% .”
Canaccord rates Nike shares a hold with a $52 price target.
“Lastly and most troubling is guidance which implies the second-half revenue growth to not only accelerate but nearly double the pace of first half growth to 11% while comparing against the Olympics-boosted growth last year,” analysts wrote.
“Given the moderating futures, we are hard pressed to see how Nike will realize that level of acceleration given the intensifying competitive landscape… In our opinion, Nike is having to navigate an environment it has not seen for years, one in which consumer preferences are shifting elsewhere and which likely does not change course for the foreseeable next six-to-nine months.”
Nomura lowered its price target to $60 from $64, listing three factors that impacted the gross margin decline, “two of which appear more one-time, or optical, in nature”: Nike’s decision to stop selling golf equipment, the move in costs from operating overhead to cost of goods, and the growth of off-price retail.
“Despite the threat from a push by competition and disappointing futures, we view Nike’s scale and dominance as a long-term barrier to entry and maintain our buy rating despite what appears a nascent share loss,” Nomura wrote in a Tuesday note.
Deutsche Bank also believes the company’s “strong, long-term thesis” remains the same. Analysts there maintain the stock’s buy rating, but lowers the price target to $70 from $75.
UBS cut its price target to $67 from $70.
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Citi, going against the trend, raised Nike’s price target to $64 from $61. Despite the North American future orders slowdown, analysts said in a Wednesday note that they’re “encouraged” by the revenue outlook. International sales and futures, and the positive effects of supply chain and product investments were also highlighted.
“North America sales re-accelerated to 6% year-over-year from flat in the fourth quarter, with a healthier level of inventories and strong reads on the upcoming pipeline,” Citi wrote.
The bank rates Nike shares buy.
Nike stock has dropped 13.8% for the year so far while the S&P 500 index SPX, -0.01% is up 5.5% for the same period.