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Nike Says Futures Orders Don't Matter; Some Analysts Agrees

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Nike Says Futures Orders Don't Matter; Some Analysts Agrees

Most investors concern themselves with a few metrics companies report in their earnings print. The most common metrics include earnings per share revenue, same-store sales, margins and guidance. But in Nike Inc (NYSE: NKE)'s case investors are fixated on its futures orders.

Nike discloses in earnings reports its "futures orders," which represent a commitment on Nike's end to ship products in the future. For example, Nike permits retailers to order merchandise in advance, and in exchange, Nike will offer a fixed price for the future delivery.

But Nike started arguing recently that its futures orders aren't necessarily the best tool for investors to predict revenue growth, and an ensuing debate among Wall Street analysts and investors unfolded. On the one hand, Nike's futures are a form of guidance whereby Nike is communicating a near-term demand outlook for its products.

Wall Street Isn't Concerned

On the other hand, Goldman Sachs' Lindsay Drucker Mann said in late 2016 that a disconnect between futures and sales is not uncommon. For example, Nike's sales came in stronger versus futures throughout a turnaround in China in fiscal 2014 and 2015.

On Monday, the latest Wall Street analyst added their name to the mix. Nomura's Simeon Siegel argued that the "relevance of futures is breaking down." The analyst echoed those of his Goldman Sachs peer and noted that the relevance of the futures metrics has been diverging, and diluting the value of the metric.

Siegel suggested that investors pay closer attention to any sales guidance Nike offers as this metric mostly comes closer to reported revenues compared to futures.

Bottom line, Siegel is bullish on Nike's scale which remains a "material competitive advantage." As such, the analyst maintains a long-term Buy rating and $60 price target.

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Latest Ratings for NKE

DateFirmActionFromTo
Dec 2020Raymond JamesMaintainsOutperform
Dec 2020NeedhamMaintainsBuy
Dec 2020Credit SuisseMaintainsOutperform

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