Nike's Guidance Remains Aggressive Relative To Futures Orders

Nike Inc NKE reported its Q2 2017 results, with the EPS ahead of the estimate and consensus, driven by increased sales.

B. Riley’s Mitch Kummetz reiterated a Neutral rating on the company, with a price target of $56.

Nike reported its Q2 2017 EPS at ahead of expectations at $0.50, driven by a 6.4 percent rise in sales to $8.180 billion, which was ahead of the estimate and consensus.

The gross margin, however, missed expectations, although Nike “more than made up for this with lower‐than‐expected SG&A, which was the main reason for the EPS beat,” Kummetz mentioned.

Aggressive Guidance

The company also reiterated its FY 2017 sales guidance, despite the weaker than anticipated Q3 2017 guidance.

In addition, Nike noted that C$ futures at the end of Q2 stood at an increase of 2 percent, which was a significant sequential decline from the rise of 7 percent at the end of Q1.

“But this did not deter NKE from reiterating its FY17 sales guidance, given some disconnect between futures and expected sales growth,” the analyst stated.

With futures being worse than expected and the company likely to continue to lose share, Kummetz believes that the guidance was “aggressive relative to its futures” and that “the issue with NKE’s futures is less about what impact it will have on the company’s back half sales and more about what it suggests is happening to NKE in the marketplace, especially North America, where futures are down 4 percent.”

The analyst expects intensifying competition to continue to be a headwind for Nike beyond FY 2017.