Company Reports

We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges, such as soft demand for sportswear in key markets. Our wide moat rating is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Wide-moat Nike matched our forecast with flat sales growth in its third-quarter fiscal 2024 (end-February), but this result was overshadowed by guidance for a low-single-digit percentage sales decline in first-half fiscal 2025. This outlook suggests that subpar consumer demand for sportswear in North America, China, and other key markets is likely to persist longer than many industry participants have anticipated. As such, our forecast for Nike to rebound to 7% sales growth in fiscal 2025 is likely out of reach and we expect to lower our $136 fair value estimate by a mid-single-digit percentage. Even so, we think investments in products, marketing, and its supply chain will allow it to regain lost share and outpace market growth when sportswear demand improves. Historically, investing in Nike’s shares in difficult periods has been a very successful strategy.

We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges, such as uneven demand for sportswear in key markets. Our wide moat rating is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Wide-moat Nike’s earnings in its (November-ended) fiscal 2024 second quarter surpassed our forecast, but this result was overshadowed by a disappointing second-half sales outlook, especially in greater China and Europe, the Middle East, and Africa, or EMEA. Specifically, the firm guided to 1% sales growth for the full fiscal year, below our 4% estimate. Moreover, Nike announced a new restructuring plan that will bring $400 million-$450 million in one-time charges in the second half. This plan, which will include layoffs, increased automation, and product eliminations, is expected to generate as much as $2 billion in cost savings over the next three years to fund efficiency, speed, and product development efforts.

We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges like inflation, elevated inventory, and uncertain demand for apparel. Our wide moat rating is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Wide-moat Nike’s profit margins eclipsed our estimates in its (August-ended) fiscal 2024 first quarter despite a tough demand environment in North America and negative currency effects. We believe the firm’s competitive advantages, including its innovative product, robust marketing, and global focus, are allowing it to outperform competitors. Although second-quarter sales growth is likely to be negligible, we do not think Nike will need to resort to heavy discounting as its inventory was down 10% at the end of the first quarter. Nike’s shares edged up by 8% in Sept. 28 postmarket trading, but we still rate them as undervalued in relation to our fair value estimate of $136, which we do not expect to revise materially. Nike’s shares have rarely traded at such a sizable discount to our valuation over the past decade.

We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges like inflation, elevated inventory, and uncertain demand for apparel. Our wide moat rating is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Nike posted 16% sales growth in greater China (15% of brand revenue) in its May-ended fiscal 2023 fourth quarter, allowing for 5% total sales growth that eclipsed our 3% forecast. We view the China result as encouraging given concerns about market share loss to local brands and the pace of the region’s economic recovery. However, Nike’s shares dipped 4% in postmarket trading, likely because of concerns about higher operating expenses that led to a small EPS miss ($0.66 versus our $0.69 forecast) and soft apparel demand.

We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges like inflation and waning economic growth. Our wide moat rating on the company is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Despite concerns about slowing consumer spending and other issues, Nike’s sales growth and EPS eclipsed our estimates in its fiscal 2023 third quarter (ended February). While there was discounting to clear product, inventories were up just 16% year over year at quarter-end after being up 43% at the end of November, a positive trend. Guidance for flat to low-single-digit sales growth in the fourth quarter is slightly above our previous forecast, input costs have declined, and there should be a substantial benefit in fiscal 2024 from the end of China’s virus-related restrictions. Thus, we expect to lift our $134 fair value estimate by a mid-single-digit percentage, leaving the shares slightly undervalued.

We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges despite near-term inventory and economic issues. Our wide moat rating on the company is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Highlighted by a 17% (27% constant currency) revenue increase that eclipsed our 10% forecast, Nike outperformed our expectations in fiscal 2023’s (November-ended) second quarter despite concerns of slowing consumer spending due to inflation and widespread industry discounting. Nike itself has needed to implement markdowns to clear an excessive amount of out-of-season apparel, especially in North America. While its gross margin dropped 3 percentage points to 42.9% (slightly above our 42.3% estimate) and its inventories remained high (up 43% from an unusually low level last year), we believe both metrics are set to improve in the coming quarters due to sales momentum, product releases, and the reopening of China’s economy after months of virus-related restrictions. Given these trends and the quarterly outperformance, we expect to lift our $129 fair value estimate on Nike’s shares by a mid-single-digit rate. After this lift, we still view its shares as attractive despite a 13% jump in post-market trading on Dec. 20. We believe Nike’s results in a difficult footwear and apparel market support our wide moat rating based on its brand intangible asset.

We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges despite near-term inventory and economic issues. Our wide moat rating on the company is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Investors have forsaken apparel manufacturers and retailers, which we believe present numerous attractive opportunities. These firms have struggled with many issues in 2022, including higher inventories, lower operating margins, inflation, logistical challenges, tough comparisons with 2021, low international travel, and an extremely strong U.S. dollar. However, we see positive signs. In recent weeks, shipping has shown signs of normalizing, and gas prices have dropped. Moreover, we anticipate inventory levels will improve as manufacturers cancel shipments and sales increase in the holiday season (as is typical). In 2023, we anticipate the benefits of investments in supply chains and other operations by many apparel firms will become more apparent. Consequently, despite widespread pessimism in the market, we believe now is a good time to consider the many apparel stocks trading well below our fair value estimates.

Although Nike’s sales performance in its (end-August) first quarter of fiscal 2023 eclipsed our forecast, this result was overshadowed by a disappointing near-term outlook due to the U.S. dollar’s strength and elevated inventories for the firm and peers in North America. Despite healthy demand, Nike has recently struggled to manage its product deliveries due to shipping woes, leading to a surplus of out-of-season inventory. Specifically, its quarter-end inventory jumped 44%. While markdowns will weigh on second-quarter margins, we believe the worst of Nike’s inventory issues has passed as shipping has normalized and sell-through appears solid. The firm reported strong back-to-school demand and double-digit sales growth thus far in September.

We view Nike as the leader of the athletic apparel market and believe it will overcome the challenge of COVID-19 despite near-term supply issues. Our wide moat rating on the company is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Nike closed its (May-ended) fiscal 2022 with mixed results as significant virus-related disruptions in China and continuing supply problems hampered sales. Moreover, the firm’s guidance for fiscal 2023 was soft due to unfavorable currency movement, high shipping costs, and uncertain consumer spending amid high inflation. Specifically, Nike’s guidance suggests reported revenue growth may fall short of our 12% forecast due to the stronger U.S. dollar, while its gross margin may miss our 47.3% estimate by around 130 to 180 basis points on greater discounting and higher shipping and other costs. Despite this outlook, we think demand is generally healthy and expect some of these issues will abate as the fiscal year progresses. Moreover, Nike intends to raise prices by mid-single-digit levels, which we think will be accepted by the market due to its brand strength, the source of our wide-moat rating. Thus, we do not expect to make any material change to our $133 fair value estimate, and view Nike’s shares as attractive. We think investors are underestimating its brand strength and long-term growth prospects in China, as well as the potential for margin enhancement as it continues to shift to direct-to-consumer from wholesale distribution in North America.

We view Nike as the leader of the athletic apparel market and believe it will overcome the challenge of COVID-19 despite near-term supply issues. Our wide moat rating on the company is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

Nike’s sales and profitability exceeded our estimates as it benefited from strong demand for activewear in its (February-ended) fiscal 2022 third quarter. Given this result and a slight decrease in our long-term tax rate assumption of 14% (we no longer expect a U.S. corporate tax hike), we expect to lift our $132 per share fair value estimate by a low-single-digit percentage. We view Nike’s shares, up about 6% in post-market trading, as fairly valued.

We view Nike as the leader of the athletic apparel market and believe it will overcome the challenge of COVID-19 despite near-term supply issues. Our wide moat rating on the company is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.