Nike Inc (NKE): Are North America Sales “Finally Turning?” Anna Andreeva Shares Two Cents

For Anna Andreeva, innovation has her encouraged on NKE's prospects following FQ3 show- even as the analyst plays it safe.

Nike Inc (NYSE:NKE) delivered a fiscal third quarter performance that to one sidelined analyst indicates innovation is not large-scale yet- but there is potential.

Nike is “getting closer to innovation,” writes Oppenheimer analyst Anna Andreeva, who notes that though North America sales came up short of Street-wide expectations – the company’s third miss out of the last five quarters – gross margins soared past expectations.

With “full-price selling on innovation ahead of plan,” Andreeva is encouraged to see the NKE team “bullish on North America finally turning as innovation begins to scale F4Q18.”

Investors like what they see here, sending shares on a solid 4% jump in trading this morning.

“As supply is becoming better aligned with demand, within expectation for flat NA in F4Q18, momentum should build each month (similar to F3Q18); for FY19, gross margins guided in line with longer term plan (as much as 50 bps expansion, per ’17 Analyst Day) along with still some investments (we model SG&A dollars up MSDHSD) yields $2.60+ in EPS. Trading at 25x, valuation is compelling if estimates are in fact safe/heading up (jury still out on NA inflecting); comments about improved orders at key partners a positive lateral for FL,” explains Andreeva.

The analyst continues, “While small, sell-through on new styles (particularly Nike React and Air Max 270) is exceeding both expectations and previous launches; management plans to roll out React technology across Running, Sportswear, and Basketball already F4Q18.”

Though North America was not the company’s strong point in its fiscal third quarter print, Andreeva takes note of “positive offsets” with ecommerce that stepped up throughout the quarter, average selling prices that leapt “slightly higher,” and Basketball making a rebound to gains.

On back of the earnings show, the analyst is hiking fiscal 2019 EPS expectations to $2.60 thanks to improved sales as North America makes a gains comeback and gross margins rise. Though gross margins had suffered between fiscal 2017 and fiscal 2018, the analyst notes “unfavorable” foreign exchange impacts will go away in fiscal 2019.  On a final encouraged note, Andreeva surmises “modeling SG&A + HSD as NKE continues to drive accelerated digital/analytics investments.”

For now, the analyst reiterates a Perform rating on NKE stock without listing a price target. (To watch Andreeva’s track record, click here)

TipRanks showcases a cautious, yet optimistic Wall Street consensus surveying this athletic retailer giant. Out of 17 analysts polled in the last 3 months, 8 are bullish on NKE shares, 8 remain sidelined, while 1 is bearish. With a return potential of nearly 8%, the stock’s consensus target price stands at $69.27.

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