Nike 'Best In Class' According To Bernstein, Receives Outperform Rating

Nike Inc NKE's brand sentiment in North America has been a contentious topic over the past few years, but a new Bernstein report affirms that the company is still ‘Best In Class.’

Despite increasing competition in the space, Bernstein analyst Jamie Merriman believes athletic apparel and footwear remain category winners.

“In the long term, our preference is for footwear, given our view that manufacturing a performance shoe is much more difficult than creating apparel and will be more consolidated and with more competitive barriers as a result,” said Merriman.

Due to the many concerns regarding Nike, Merriman acknowledged that the company’s short-term view on Nike will be controversial, but he does not believe there is a fundamental problem with the brand traction or category.

Sportswear Is Fashion: Who's The Leader?

The analyst also noted that adidas AG (ADR) ADDYY growth in North America has put significant pressure on Nike, after outpacing the company in the region for the past six quarters.

Related Link: Breaking Down The Footwear Sector: Adidas Pipeline Still Strong, Under Armour Under Pressure

“Much of adidas’ strong performance has come on the back of lifestyle trends like the Stan Smith sneaker, and our proprietary survey of 1,000 men and women in July suggested that fashion is the primary driver of adidas purchase for 24% of consumers. The good news for Nike is that consumers also believe Nike offers good fashion, scoring even higher on fashion than adidas,” said Merriman.

Industry Shift From Retail To Direct

Many of the biggest problems that have been raised regarding Nike’s have been due to key retail partners Finish Line Inc FINL and Foot Locker, Inc. FL performance, given the retailers heavy reliance on Nike products, but Merriman believes the stores performance may be retailer specific. Nike’s direct-to-consumer business has been growing twice the pace of wholesale over the past five years.

'Edit To Amplify'

Nike's recent sales slowdown in North America has largely been due to wholesale destocking, an effort the brand calls “edit to amplify.” Nike simply has had too much product in the market and looks to slim down its offerings by focusing on the product assortment of best sellers, a strategy Adidas has been superior at executing in recent years.

While sales may continue to slow in 2018 due to the “edit to amplify” effort, Merriman expects Nike’s North American sales to recover in FY19.

Bernstein placed an Outperform rating on Nike with a $69 price target.