Nike Negativity Could Spread To Retailers

There’s a bit of divide heading into Nike Inc NKE's first-quarter report.

Baird Says Buy

Jonathan Komp of Baird Equity research does not believe Nike is out of the woods just yet, but negative sentiments are embedded into expectations.

“Even though FQ1 EPS probably does not have a lot of upside and a higher conviction buying opportunity could arise post the October 25 investor day, we still see a positive one-year-out risk reward for the stock,” said Komp.

As adidas AG (ADR) ADDYY continues to steal headlines and put pressure on Nike, Komp remains positive on Nike given its current low sentiment. The firm maintains an Outperform rating on Nike with a $65 price target.

Needham Says Hold

Rick Patelof Needham takes a more cautious approach on the swoosh. Given the call outs of Nike’s softness by its multiple retail partners, Patel believes its hard to see Nike’s recent downturn as a “one quarter hiccup.”

“While we think it is wrong to discount Nike’s potential to take market share, we think the industry’s soft demand and discounting will persist,” said Patel.

While the analyst insists that Nike’s biggest opportunity exists in emerging markets, he believes the North American story is likely to dominate the stock’s narrative.

Needham lowered its first-quarter 2018 and full-year 2018 EPS estimates and maintains a Hold rating.

Retailers Beyond The Swoosh

Nike’s recent downturn has spelled trouble for the retail partners that have heavily relied on the brand over the years.

The brand's lack of innovation over recent years has weighed heavily on its several partners, including Finish Line Inc FINL, which purchased 71 percent of its total merchandise from Nike in in fiscal 2017.

Investors will be watching Nike’s earnings closely to gauge Finish Line’s results, which come out Friday, just a day after Nike's print. Baird’s Komp is not expecting a positive result.

“Any inability of key vendors to produce high quality products or to allocate sufficient merchandise to FINL could adversely impact results,” said Komp.

Nike’s significant discounting has affected Dicks Sporting Goods DKS, forcing the retailer to invest heavily in pricing to defend its market position. Ultimately, discounting will impact margins over the next several quarters for Dick's.

Hibbett Sports, Inc. HIBB is also materially affected by Nike, where first-quarter results are expected to negatively impact the retailers shares. Hibbett tends to over-index on performance products, and weakness in the category has played a significant role in Nike’s struggles.