Nike Inc. is expected to announce first-quarter earnings on Tuesday after the closing bell.
Nike NKE, +0.09% has struggled recently with what Cowen & Company calls a “wholesale channel disruption (71% of Nike’s North America sales) which for Nike could mean lower ASPs [average sale prices], declining sales and margin contraction,” analysts led by John Kernan wrote in a Friday note.
On Friday, Finish Line Inc. FINL, +5.53% reported adjusted earnings per share that fell below expectations, even after the athletic retailer gave a profit and sales warning on Aug. 28. Foot Locker Inc. FL, -0.30% , Dick’s Sporting Goods Inc. DKS, +2.44% and other retailers are facing a promotional environment that’s putting pressure on some of the best known names in the athletic space.
Nike has already announced a direct-to-consumer strategy that will focus on its own selling channels. But there are other forces in the space taking a toll on the company.
“We continue to see risk surrounding Nike’s basketball business as price deflation in the category increases,” Cowen wrote.
Cowen analysts rate Nike stock market perform with a $53 price target, down from $54.
Basketball category sales were down 20% in August according to the latest numbers from The NPD Group. Adidas AG ADS, +0.57% basketball sales grew more than 40% while Nike declined in the mid-single digits and, more surprisingly for NPD, Adidas surpassed Nike’s Jordan brand to become the number two brand of U.S. sport footwear.
“Recent proprietary checks indicate an inordinate amount of signature basketball (KDs, Lebrons, Kobe) and, to a lesser extent, Jordan retro product being sold at Nike Factory stores,” wrote Susquehanna Financial Group analysts in its note downgrading Nike to neutral from positive, published on Tuesday. “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.”
Susquehanna cut Nike’s price target to $54 from $64.
Nike has an average overweight stock rating, with an average target price of $60.26, according to 39 analysts polled by FactSet.
Here’s what to expect:
Earnings: Analysts polled by FactSet expect earnings per share of 48 cents, down from 73 cents last year.
Estimize, a software platform that crowdsources estimates from buy-side analysts, hedge-fund managers and others, expects EPS of 52 cents.
Revenue: FactSet expects sales of $9.09 billion for the quarter, up from $9.06 billion last year.
Estimize expects revenue of $9.11 billion.
Stock reaction: Nike shares are up 0.7% for the past three months, and up 4.7% for the year so far.
What to watch for:
– Canaccord Genuity thinks investors have shown an “extraordinary amount of patience over the past two years, and perhaps that patience could start to wane.” With little progress in the innovation pipeline and a surging Adidas, among other factors, analysts are cautious and think an earnings beat will be “expense-driven” on “easy comparisons.”
Canaccord rates Nike shares hold with a $51 price target.
– Stifel analysts believe that, despite near-term challenges, the athletic category has “long-duration global secular and structural tailwinds,” according to a Sept. 13 note. “We see Nike uniquely positioned to execute to a more direct model which we expect translates to growth, margin improvement, and strengthening return on invested capital longer-term.”
Stifel rates Nike shares buy with a $66 price target.
-Nike and the National Basketball Association announced a collaboration last weekthat includes the Nike NBA Connected jersey, the first NBA jersey that gives the wearer an “all-access pass” to their favorite teams and players,” according to a release from the NBA. The jersey will give the wearer real-time content, like player arrival footage and a top player’s music playlist, delivered to their mobile device.
The collaboration also includes the Nike Therma Flex Showtime Warm-up Jacket, the first hooded jacket to be worn on the court during games.