Nike's North American Future Orders Down 'Shocking' 9%

Nike Inc NKE reported its fiscal third-quarter results with the EPS of $0.68 beating the estimate, although Canaccord Genuity’s Camilio Lyon observed that “the beat was of low quality as lower SG&A, a lower tax rate, and higher other income accounted for all the upside.”

The analyst maintains a Hold rating on the company, with a price target of $51.

FQ3 Results

For FQ3, Nike also reported sales growth of 5 percent, in line with the estimate but marginally missing the consensus. Gross margin contracted 146 bps, which was worse than anticipated.

“It is clear that NKE understands the market dynamics are shifting, not only with respect to the digital disruption ongoing in NA retail, but also with respect to the competitive landscape,” Lyon stated.

The analyst noted that Nike was adapting to the changing landscape by taking on a new strategic initiative, while doubling down speed to market, and focusing on innovation and connecting directly with consumers.

“On one hand, we like the aggressive steps NKE is taking to improve its positioning in the market; however, we continue to believe it will take time to turn the business,” Lyon went on to say.

‘Shocking’ Futures

The analyst pointed out that competitive headwinds from adidas AG (ADR) ADDYY were intensifying, making share recapture tougher for Nike. This is clearly visible in futures, with global futures decline 1 percent in FQ3 and North American futures declining “a shocking” 9 percent.

“In short, the next 12–24 months will be determined by how well NKE’s new cushioning/performance innovations are received by consumers, despite the fact that we are in a casual/lifestyle cycle,” the analyst said.

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