Attention Nike Investors: 'Reasons For Caution Increase'

Credit Suisse’s Christian Buss expressed concern that the quality of results reported by Nike Inc NKE are deteriorating, while “top-line trends in key markets look shaky, gross margin pressure is persistent, and the company is reducing disclosure.”

Buss maintained an Outperform rating on the company, while lowering the price target from $63 to $60.

Related Link: Nike Is In An 'Innovation Reset', Brean Downgrades Stock

Nike reported Q1 2017 results with deceleration in North American futures, possibly driven by increasing market competition. Gross margin also declined due to near term headwinds, while SG&A spend moderated.

Buss, however, believes “Nike will be a prime long-term beneficiary of the disintermediation of third party retail in the apparel and footwear space.”

Futures

The analyst noted that while North American futures decelerated further, with Nike reported the lowest futures growth for the region since Q2 2010, global markets future remained healthy, especially in Western Europe, Greater China, Japan and the Emerging Markets.

“The company expects revenue growth to outpace futures growth through the balance of the year due to signs of stronger sell-through,” Buss stated.

Margin Pressure

However, near-term gross margins are expected to remain pressures, following Nike’s exit from the golf equipment business, FX hedging, categorization of spend from SG&A to cost of goods sold and a negative mix shift.

“Longer-term, we continue to believe the benefits from category offense as well as the effects of the "manufacturing revolution," such as product cost optimization and faster speed to market, support our gross margin expansion thesis,” the analyst added.

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