Nike Inc (NYSE:NKE) provided a staggering market with some much-needed support. Last week, The Dow Jones Industrials average suffered its fifth-worst point loss in history, plummeting more than 700 points. So, it came as great relief for the market when Nike stock moved higher Friday.
Despite that, The Dow closed with more heavy losses Friday. But don’t blame Nike Inc – it was one of the few companies in the green on another ugly market day.
And with good reason. Even after its recent run-up, many investors and analysts are still excited for Nike’s prospects. For example, Craig Johnson, market technician for Piper Jaffray, stated that: “We like the chart, we like the longer-term setup from what we’re seeing here […] You can see that there’s this big base that’s been forming over the last two years.”
He’s got a good point. Nike stock topped out in 2015 in the high 60s. After rattling around in the 50s for the past two years, it started charging up again this past fall. Nike stock even briefly hit 70 in February before rolling over. But with the latest earnings beat, NKE stock could be ready for a sustained run to new all-time highs once the current spot of market turbulence clears up.
Nike Stock: Strong Quarter
Ignore the stated loss this quarter. That came from a one-time effect from the new tax reform legislation. Aside from that blemish, Nike delivered stellar numbers this quarter. Overall, the company grew revenues a healthy 7%, including double-digit gains in NIKE Direct.
Within its industry, there have been mixed signals. Key rival Under Armour Inc (NYSE:UAA) has lost close to 70% of its value since 2015. On the other hand, adidas AG (ADR) (OTCMKTS:ADDYY) has tripled over the same time span. The industry appears to be stuck in a fierce battle for market share.
With this earnings report, Nike confirms it is one of the winners, and Nike stock shouldn’t face a similar fate to Under Armour.
The quarter did have some soft points. Gross margin fell, though largely due to currency effects. However, the overall cost of product actually declined – a solid plus, as the margin pressure came from other sources. Also, the company’s spending on SG&A surged, though listening to the conference call, it’s clear that management has plans to achieve a quick return on this investment.
Staying Ahead Of The Game
Obviously retail is changing quickly. Unlike many, however, Nike isn’t prepared to let Amazon.com, Inc (NASDAQ:AMZN) slice and dice up its market. In fact, Nike is making a bunch of cutting-edge moves to stay competitive around the world.
Along with the earnings report, Nike announced that they are acquiring the New York-based data analytics firm Zodiac. Nike is concentrating on the immersive consumer experience, melding online, apps and the in-store capacity.
The company is moving into data analytics in a big way to further build out the retail opportunity through all channels. Nike is rolling out its new interactive experience in select markets this year.
Andy Campion, Nike’s CFO, noted how well the company’s digital strategy is already working on the conference call:
“Our Nike digital ecosystem in particular is setting the pace for growth in all four of our geographies. On a currency neutral basis, nike.com grew 18% globally driven by the expansion of our digital apps in international markets as well as the launch of Nike+ membership in North America. In each of our international geographies, nike.com’s rate of growth outpaced the overall marketplace rate of growth by 2x or greater.”
18% growth, even before incorporating insights from the new data analytics firm, is quite impressive. Nike is leading the way in showing that brands can sell their own products without having to rely on the likes of Amazon.com to reach the consumer. In a way, Nike is looking like one of the future winners in retail.
Analysts Raise Price Targets, but Ackman Sells
Not all investors are still so positive on Nike stock. Bill Ackman reported earlier this week that he had unloaded his position in NKE stock. The filings suggest that Ackman’s Pershing Square hedge fund made a profit of about $100 million on its position in Nike stock.
Now to be fair, it may not be the worst news that Ackman dumped his Nike stock. Ackman has been on an awfully long losing streak, with notable misfires including his campaign against Herbalife Ltd. (NYSE:HLF) and a large investment in the so-far struggling turnaround Chipotle Mexican Grill, Ltd. (NYSE:CMG).
Regardless, a lot of investors follow celebrity investors closely, and Ackman’s sale may push other investors to dump their NKE stock as well.
Aside from Ackman, several other analysts have weighed in. Canaccord remains at a neutral outlook, but they did boost their price target from $60 to $62. Meanwhile, over at Pivotal Research Group, their analyst boosted the NKE stock price target from $65 to $68.
Neither are huge moves, but they confirm the strong quarter and improving odds of a technical breakout around the $70 level in coming days.
Nike Stock Verdict
Nike’s earnings report isn’t a huge game-changer, but the company is clearly on track. Bears will say that the company is simply too expensive. At 28x trailing and 24x forward earnings, Nike stock is pretty pricey for a company of its size and growth rate.
That said, the company has paid a reliable and rapidly-growing dividend over the years, rewarding patient shareholders. On top of that, the company now has its growth momentum back. And its efforts in direct-to-consumer digital sales and data analytics should power up another strong year of results. For now, Nike stock favors the bulls with a breakout above $70 quite possible this quarter.
At the time of this writing, the author held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.
