Nike (NKE) is scheduled to report results of its first fiscal quarter after the market close on Tuesday, September 22, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. GUIDANCE: While the company didn't provide specific guidance for fiscal 2021 in June, citing continued uncertainty, Nike did say it expects FY21 revenue to be "flat to up." It also said it expects revenue for the first half of the year to be below prior levels, but less of a decline than in the fourth quarter, and that it expects revenue for the second half to be "up significantly."
Deutsche Bank analyst Paul Trussell believes Nike in fiscal Q1 "will showcase impressive" digital growth and cost management. However, he remains on the sidelines due to valuation as well as uncertainty around the near-term sales outlook "given a continued culling of wholesale partners." Meanwhile, Raymond James analyst Matthew McClintock expects revenue to decline 10% with sequential acceleration throughout the quarter, which while potentially conservative, could still fall short of the more bullish expectations on the Street.
2. EXECUTIVE LEADERSHIP SHAKEUP, LAYOFFS: On July 22, Nike announced a number of leadership changes as well as job cuts, in an effort to focus on its digital business and selling more directly to customers as the coronavirus pandemic shifts buying habits. The company said the changes it is making will lead to a "net loss of jobs across the company," which will result in pretax, one-time employee termination costs of roughly $200M-$250M. Among the leadership changes, Nike named the former head of its global categories, Amy Montagne, as vice president of its men’s business, and named the former head of its specialty businesses, Whitney Malkiel, as head of its women’s business.
Susquehanna analyst Sam Poser raised the firm's price target on Nike to $150 from $130 and keeps a Positive rating on the shares. The analyst thinks improving trends, cost savings from layoffs of 7%-10% of its workforce, and foreign exchange tailwinds, will drive the shares beyond its 2023 revenue target.
3. CHANGES TO MAKE NIKE MORE AGILE: BTIG analyst Camilo Lyon raised the firm's price target on Nike to $140 from $117 ahead of the company's Q1 earnings. According to an industry contact who is intimately familiar with Nike's business, Lyon says the key takeaway is the changes Nike is making across all aspects of the business will make it a more digitally agile business with much higher EBIT margins over the next five years. That said, Lyon notes that there are near-term hurdles to be mindful of in North America, namely a shortage of inventory, that could cap the sales recovery domestically for the next two quarters as the company scrambles to fill depleted shelves.
4. COMPETITION: Nike is under pressure from competitors including traditional players Under Armour (UA, UAA) and adidas (ADDYY), as well as from Amazon (AMZN), which now has private-label sportswear available on its site. Morgan Stanley analyst Kimberly Greenberger raised the firm's price target on Nike to $142 from $121, saying Nike is one of the few companies she covers whose business model, total addressable market, and margin profile "look better positioned post-COVID-19." Given that view, she acknowledges that her out-year revenue estimates may be $1B to as much as $4B too low and Nike's "earnings power similarly under-estimated," Greenberger tells investors.
Piper Sandler analyst Erinn Murphy raised the firm's price target on Nike to $130 from $112. The analyst continues to see signs of "robust Nike brand strength" in the marketplace, supported strength in China and accelerating relevance in the secondary market. Longer-term, Murphy is bullish on the "significant margin benefits" of Nike's digital business, which she says alone could drive corporate EBIT margins to the mid-teens range by fiscal 2023.
Nike
+0.52 (+0.46%)
Under Armour
+0.02 (+0.21%)
Under Armour
+ (+0.00%)
Amazon.com
+87.82 (+2.97%)
Adidas
+ (+0.00%)