Another Run Up: Can Nike Shares Just Do It?

Nike Inc NKE were certainly happy Thursday after-hours, when the company posted a solid fourth-quarter beat and confirmed analyst speculation of a move onto Amazon.com, Inc. AMZN.

Nike reported EPS of $0.60 compared to $0.50 consensus, and sales of $8.7 billion compared to an estimated $8.63 billion.

Shares were up 6.6 percent to $56.50 on Friday’s open and continued to climb.

In response to the news, Jefferies analyst Randal Konik reiterated a Buy rating on the stock with a $75 price target.

Nike Is ‘Ready To Run’

Konik notes that while revenue growth was driven primarily by new products, particularly the Air VaporMax, Kyrie 3 and PG1 shoes, the company has much more going for it heading into fiscal 2018 (see Konik's track record).

The basketball segment saw accelerating momentum, returning to growth in Q4 after a year of decreasing sales.

Running was particularly strong, driven by fresh innovation as seen in the Air VaporMax, which resulted in 8 percent running growth alone.

The company also demonstrated an ability to carefully manage inventories, which were up 4 percent compared to revenue up 5 percent.

Konik said this indicates a easing in promotional pressures in the athletic retail sector as a whole.

The analyst was also impressed by management’s plans for the future. Despite North American futures being down 10 percent, they are less and less correlated to sales, partly a result of the company focusing on its direct-to-consumer business.

Direct-to-consumer business was only 35 percent of revenue on a wholesale equivalent basis, but accounted for 70 percent of Nike’s fiscal 2017 growth.

The main avenue for direct-to-consumer sales appears to be through the recently-announced Nike store on Amazon, which for the near-term will be a small, highly tailored pilot.

Under Armour Inc UAA already has an Amazon store, which has significantly helped it to grow market share this past year.

Konik was a fan of management’s “test and learn” approach to Amazon, and believes the company will see growth in the mid-single digit percentages.

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