Baird Expects Nike To Reach North American Inflection With New Products

Nike Inc NKE may have made a vital shift from away from a push market to a pull market.

After suffering through several quarters of devastating markdowns and an inventory glut, Nike is upbeat about its innovation and returning to a pull model with better sell-through, according to Baird. 

The Analyst 

Baird analyst Jonathan Komp reiterated an Outperform rating on Nike with $78 price target.

The Thesis

Following a conversation with Nike management, Komp said the apparel maker's confidence is "unwavering" and Nike remains bullish about the performance of newer product launches in North America and globally. (See the analyst's track record here.) 

Nike has strong sell-throughs and a positive outlook for Vapormax, which has now scaled to millions of pairs;' the newly launched Epic React is receiving a strong reaction; the Odyssey React is launching shortly; and the AirMax 270 and ZoomX are scaling more in the summer, Komp said.

Slight inventory growth of 5 percent year-over-year after six quarters of decline reflects healthy new product build, and Nike dismissed any concerns about recent promotions, the analyst said. 

“Based on the company’s recent actions and expected North America inflection, we are more confident NKE is responding to broader challenges with a potentially transformative combination of innovation, enhanced digital services/experiences, advanced manufacturing, and leveraging its scale to drive much better performance going forward,” Komp said.

Despite the storyline of adidas (AG) (ADR) ADDYY continuing to encroach on Nike’s turf in North America, the sportswear giant is still a global leader, with 55 percent of revenues derived from outside the U.S. Footwear drives the lion’s share of revenue for Nike, accounting for 65 percent of fiscal 2017 revenue.

Nike doubling down on a direct-to-consumer model also bodes well for the future health of the company, Komp said. Nike.com grew nearly 30 percent to $2.2 billion in 2017 and remains Nike’s most profitable channel, he said. 

“We also believe the company’s strategy of pursuing greater direct-to-consumer sales represents an attractive means to extend the reach of the brand that can provide an attractive ROI."

Komp sees upward bias to estimates and continued positive sentiment as Nike earnings re-accelerate into fiscal 2019. 

Price Action

Nike shares were down 1.44 percent at $65.25 at the time of publication Thursday. 

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Photo courtesy of Nike.