Goldman Sachs Comments On Nike's Risks Following Earnings Report

While some of Nike's NKE issues are likely unique, their results last week point to inflation risk beyond whether shoppers ultimately accept planned price increases. Despite being Global with a strong product cycle and less cotton/china exposure, NKE surprised Goldman with a very negative near-term margin outlook According to Goldman, when wholesalers and retailers set their assortment plans, often 9-12 months in advance, they base planned pricing on initial production cost indications from their factories. As actual costs are coming in above those initial indications, brands must revisit planned pricing or take a margin hit. Last year, wholesaler cancellation rates were exceptionally low as retailers chased accelerating demand. Now, given fears over consumer reaction to 2H price increases, Goldman could see rising cancellations, a particular risk if inventory is growing faster than sales. NKE cited “normalization in cancellation rates” as one of the reasons sales fell short or order growth. Goldman Sachs has a Neutral rating on NKE NKE closed Friday at $77.59