Battleground: Analysts clash on Nike after restructuring announced
Two research firms had very different outlooks on Nike (NKE) after the sneaker maker announced that it would restructure its workforce and lay off 2% of its employees. Robert W. Baird, noting that Nike's stock outperformed for many years following the company's 2009 restructuring, thinks that history is likely to repeat itself. Conversely, JPMorgan downgraded the shares, warning that the company's North America sales will probably get worse before they get better. BAIRD: In 2009, Nike announced that it would focus on key initiatives and reduce its headcount by 5%, noted Baird analyst Jonathan Komp. Beginning later in 2009, the stock significantly outperformed the market for a number of years, the analyst pointed out. Komp added that the headcount cuts announced yesterday appear to be justified, since the company has 2.1 times more employees than it did in fiscal 2010, but its revenue has risen just 1.7 times during the same time period. The analyst is also upbeat on the other components of the initiative, saying they are "intended to streamline and speed up strategic execution" which has been a key concern of investors. Additionally, he thinks that the changes should result in "an artful balance of cost reductions and innovation/product investments." The analyst expressed caution about Nike's upcoming fourth quarter results, but said that the stock will probably provide "a compelling buying opportunity" following that report. He kept a $62 price target and an Outperform rating on the shares. JPMORGAN: Nike's North America growth tumbled to 3% over the last 12 months, versus an average of 12% from 2012-2016, wrote JPMorgan analyst Matthew Boss. Given that 8%-9% of Nike's North America revenue is derived from "consolidating brick and mortar" stores and that it has lost space at key retail partners, the company's North America results will probably get worse before they get better, Boss warned. Specifically, in fiscal 2018 the company's North America revenue will be flat, down from 3% growth in fiscal 2017, Boss estimated. Although the analyst was encouraged by Nike's changes, he says that they will take time to impact the company. Boss trimmed his price target on Nike shares to $58 from $61. PRICE ACTION: In morning trading, Nike fell 3.5% after having dropped over 3% yesterday. Following the two day pullback, Nike shares are roughly flat year-to-date.