Nike Stock Just Needs a Little Earnings Momentum

Chris Markoch

Mon, Sep 23, 2019, 6:35 AM

I believe in the mantra that good companies don’t suddenly become bad. Nike is experiencing increased competition and a changing retail landscape. But the company is showing an incredible ability to adapt and is still delivering value to shareholders by way of a small dividend and a proportionate amount of share buybacks.

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This leads me to believe that if Nike posts positive earnings (as expected), there is no reason to believe the stock should not get a lift going into the holiday season despite an increasingly competitive landscape.

Nike Outsells its Competition

There’s no question that both Adidas (OTCMKTS:ADDYY) stock which is up nearly 50% and Lululemon (NASDAQ:LULU) stock which is up over 30% are crushing Nike stock in 2019. But a closer look shows that Nike still is beating both regarding a fundamental metric: sales.

Nike is forecasting full-year revenue of $39.1 billion as opposed to $26.43 billion for Adidas and $3.68 billion for Lululemon. In fairness, Lululemon is a niche player on the high end of the “athleisure” market. but the Vancouver company’s dominance in the marketplace is a threat to Nike’s future growth.

And it’s a threat Nike is taking seriously. The company continues to expand its line of women’s athleisure wear. One example of this commitment was the company’s “high performance kits” that they introduced for this year’s Women’s World Cup. Nike also has introduced their own yoga collection that includes both men’s and women’s offerings.

Adidas competes with Nike directly in the sneaker game. But while both companies have exposure to China that is causing concern, Adidas is headquartered in Germany, a country that is either headed for or possibly already in a recession.

Nike is Exhibiting a Start-Up Mentality

I’m old enough to remember when Nike was a start-up. But despite becoming a blue-chip, dividend-paying stock, Nike has continued to adapt to a changing retail landscape and consumer. One of its latest ventures is the Nike House of Innovation 000 in New York City. The store is an extension of Nike’s growth in the digital space. Mobile scan and pay, interactive kiosks, and displays that reflect local trends are all a staple of the Fifth Avenue store.

Nike is also demonstrating a commitment to an enhanced in-store experience in its partnership with Foot Locker (NYSE:FL). As other shoe brands are fleeing the brick-and-mortar model, Nike is showing that in-store can work if the experience is right.

But that doesn’t mean that Nike lacks a strong digital presence. It has initiated a partnership that allows the company to sell directly on Amazon. And the company has also partnered with Walmart’s (NYSE:WMT) urban brand, Jet.com. The store saw digital sales growth of over 40% in 2018 which was well ahead of the retail sector. And Nike’s mobile demand accounted for over half of its e-commerce sales last year.

What’s Next for NKE Stock?

Nike stock has been right around this $90 level twice before this year. In June, NKE plunged as the company posted their first decline in EPS in a long time. However, the decline was short-lived and by early July, NKE stock was back near present levels. Once again, it failed to sustain the momentum.

Is the third time the charm? I think it will be. NKE stock is not inexpensive. It currently trades for over 30 times its fiscal 2020 consensus EPS.

However, analysts are high on Nike stock. And the technical indicators for Nike show a stock that has investors looking for a catalyst. A positive earnings report should provide just that spark.

As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.