Nike Inc. is scheduled to report fourth-quarter earnings on Thursday after the bell and analysts say business is running so smoothly even tariffs can’t knock the athletic giant off course.
The trade war between the U.S. and China, and possibly other countries, has been a cause for concern for retailers and the groups that represent their interests, who have a voiced their worries to policymakers in Washington, D.C.
“We support efforts to achieve better trade deals, but American consumers should be caught in the crosshairs,” said David French, senior vice president for government relations at the National Retail Federation, in a statement. “It’s time to reevaluate a strategy based solely on tariffs and work with our allies to put international pressure on China.”
But Nike NKE, +0.60% doesn’t need to worry, according to Susquehanna Financial Group analysts led by Sam Poser. Though its most recent 10-K says the company manufactures about 26% of its shoes and the same percentage of its apparel in China, analyst checks indicate that less than 10% of these goods make it to the U.S.
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“We believe exposure to China in the aforementioned categories that are imported to the U.S. has likely declined even further since the issuance of the 10-K nearly one year ago,” Susquehanna says.
Even though much of its equipment, such as baseball gloves and balls, are manufactured in China, analysts say it’s a negligible piece of the business.
“[E]quipment encompasses less than 5% of Nike’s total North American revenue,” the note said. “Thus even if 100% of Nike’s equipment category in North America is imported from China into the U.S., exposure to potential tariffs is limited.”
Susquehanna rates Nike shares positive with a $100 price target.
Nike has an average overweight rating and average target price of $92.74, according to 30 analysts polled by FactSet.
Here’s what to watch for:
Earnings: FactSet forecasts earnings per share of 66 cents, down from 69 cents last year.
Estimize, which crowdsources estimates from analysts, fund managers and academics, expects EPS of 69 cents.
Nike has exceeded the FactSet EPS expectation going back at least to May 2014.
Sales: FactSet is guiding for sales of $10.16 billion, up from $9.79 billion last year.
Estimize is forecasting sales of $10.20 billion.
Nike beat the FactSet sales guidance the last six quarters.
Stock price: Nike shares have slipped 2.6% over the last three months, but are up 15.7% for the year to date.
The SPDR S&P Retail ETF SPX, -0.13% is up 3.2% for 2019 to date, and the Dow Jones Industrial Average DJIA, -0.13% has rallied 17.7% for the period.
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Other issues:
-North American sales fell short of Susquehanna’s expectations during the third quarter, but analysts attribute that to bad timing of new product.
“As we look to fiscal 2020, we believe the innovation pipeline remains robust,” said Canaccord Genuity analysts, led by Camilo Lyon.
New product coupled with Nike’s enhanced digital experience through the SNKRS app, NikePlus program and the Nike app should drive high-single digit sales growth into the future, Canaccord said.
Canaccord rates Nike stock buy with a $96 price target.
-Women’s is a growth opportunity for Nike, and the company is coming for yogawear giant Lululemon Athletica Inc. LULU, -2.48% with its own Yoga collection. Jordan apparel is has soared double digits, according to Susquehanna. And investment will continue.
“Women’s should also continue to be a key growth driver in fiscal 2020 given the increased focus on the female consumer (introducing women’s specific designs in footwear, launching 40 new styles of bras),” wrote Canaccord.
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And taking this growing consumer base alongside geographical expansion and cross-channel development, the company is on an upward trajectory.
“In the end, Nike has a rich pipeline in both footwear and apparel (key women’s initiatives) across all channels (“core” reset gaining momentum) along with compelling global digital platform (Nike Fit launching) leading to share gains,” wrote Wedbush analysts.
Wedbush rates Nike shares outperform with a $96 price target.
-Nike will benefit from global sporting events, including the women’s World Cup taking place this year, and the summer Olympic Games in Tokyo in 2020.
“These events as well as likely continued digital/tech investments may also keep SG&A [selling, general and administrative expenses] in line with sales, while gross margin can also see upside to its +50 basis-point guidance,” wrote Wedbush analysts.
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