Updated Research Report on Nike - Analyst Blog

We issued an updated research report on Nike Inc. NKE following the company's robust third-quarter fiscal 2014 results.

For the third quarter, the company reported earnings per share of 76 cents, up 4% year over year and above the Zacks Consensus Estimate of 73 cents. Quarterly results gained from impressive top-line growth, lower tax rate, improvement in gross margin and moderately lower average share count, partly offset by higher selling, general and administrative (SG&A) expenses and negative effect of currency rates.

Excluding the impact of the currency, the top line surged 13% to $7 billion on the back of robust demand for the company's brands and significant growth in its main categories and all its locations. Sales also came ahead of the Zacks Consensus estimate of $6.8 billion.

However, the positivity surrounding Nike's strong quarterly performance and momentum of its business growth has been subdued with its recent projections for weak earnings per share growth in the forthcoming quarter and fiscal 2014 and 2015 due to currency fluctuations. Moreover, the company expects its revenue, gross margin and profit growth in fiscal 2015 to be significantly impacted by the recent currency devaluation of developing markets.

This wary outlook mirrored in the company's share price as well as the Zacks Consensus Estimates, both of which have seen significant downside since the communication of the guidance.

Shares of this footwear and athletic apparel retailer have lost 7.6% since the announcement. Moreover, the Zacks Consensus Estimate for fourth-quarter fiscal 2014 was down 7.3% to 76 cents, while for fiscal 2014 it fell 0.7% to $2.97 per share in the last 7 days. Meanwhile, the Estimate for fiscal 2015 witnessed a 3.1% decline to $3.39 per share.

Nevertheless, Nike remains an industry leader with a strong portfolio of globally recognized brands including Nike, Converse, Chuck Taylor, Hurley, All Star, One Star, Star Chevron, and Jack Purcell. This strong portfolio along with focus on innovation provides Nike a competitive edge over its peers, Adidas and Brown Shoe Co Inc. BWS.

Moreover, Nike aims to increase its global reach and market share by aggressively expanding its operations in the emerging markets, while focusing on direct-to-consumer business and other brands, which augur well for its future operating performance.

Currently, Nike carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Other stocks worth considering among the apparel –shoe retailers are Iconix Brand Group Inc. ICON and Skechers USA Inc. SKX, both holding a Zacks Rank #2 (Buy).