A Primer For Nike's Q1 Earnings Report

Nike Inc NKE may be in a ripe position to improve its earnings power during a period of retail turmoil.

The leading global athletic brand has suffered from negative sentiment with shares failing to gain much traction over the year despite market-wide highs, but analysts are starting to turn around.

Andrew Burns of DA Davidson believes Nike will be able to improve earnings by accelerating innovation, building stronger direct to consumer capabilities and streamlining its cost structure.

According to the analyst, athletic brand retailers will be one of the most disrupted retail channels given that the largest brands are entering a direct to consumer movement, sporting goods retailers were the ones who started the omni-channel movement, and increasingly battling other channels for market share.

A strongly executed transition to digital and direct to consumer should leave Nike relatively unscathed.

“We believe Nike’s favorable long-term operating growth potential will be increasingly evident as we exit this period of transition,” said Burns.

A potential slowdown from Nike’s largest competitor adidas AG (ADR) ADDYY, after seeing growth from its meteoric rise in classics/originals would also be a big boost to Nike’s sentiment.

Heading into Nike’s first-quarter earnings, set for Sept. 26, Burns believes estimates appear attainable and should fall in line.

DA Davison reiterates a Buy Rating on Nike with a $69 price target.

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