Like LeBron James, Nike Can Rise Above Criticism

Despite a slight revenue miss, Nike Inc NKE reported 4Q EPS marginally ahead of consensus. The company has been able to shine through against the backdrop of a challenging environment due to “strong execution and operational discipline,” DA Davidson’s Andrew Burns said in a report. He reiterated a Buy rating on Nike, while reducing the price target from $76 to $66.

Nike reported revenue and EPS of $8.244 billion and $0.49, versus consensus estimates of $8.276 billion and $0.48, respectively. Gross margin contracted 26bp year-over-year to 45.9 percent, due to product costs, inventory clearance in North America and currency headwinds, partially offset by higher ASPs.

FY Guidance

Nike’s FY17 guidance continues to imply high single-digit reported revenue growth, gross margin expansion of 30bp–50bp, high single-digit SG&A growth, other income of $20–$30 million on average per quarter, and a tax rate of 19–21 percent.

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Shining Through

“In a period of U.S. retail turmoil, global economic fears and stiffening competition and FX volatility, we are encouraged NKE delivered a largely in-line quarter and outlook,” analyst Andrew Burns wrote.

Although investors are likely to focus on North American deceleration, the guidance does reflect continued growth, backed by benefits of geographic, product category and channel mix diversification.

Nike’s shares are trading more than 25 percent below their 52-week high and sentiment seems to have turned “overly bearish,” Burns commented. He recommended investors to accumulate shares at 25 percent-off sale prices.

The EPS estimates for FY17 and FY18 have been reduced to $2.36 and $2.65, respectively.