Nike Inc (NKE) Shares Drop On Mixed Quarter, Weak Guidance

Investors were certainly not impressed by the fiscal third-quarter earnings report from Nike Inc (ticker: NKE) on Tuesday, or the company’s newly announced plan to improve productivity.

Nike shares are down 5.4 percent in Wednesday trading after the company reported quarterly earnings of 68 cents per share and revenue of $8.43 billion. Nike’s earnings beat Wall Street analysts’ consensus expectation of 52 cents per share, but revenue fell just short of consensus estimates of $8.44 billion.

In addition to the top- and bottom-line numbers, Nike unveiled plans to double three key areas of productivity: product innovation, supply chain speed and direct customer connections.

Deutsche Bank analyst Paul Trussell says Nike’s earnings report sounded several “alarm bells” for investors. Nike’s fourth-quarter revenue guidance was weak, its gross profit margin fell short of expectations, it lowered its guidance for fourth-quarter margins and it failed to deliver specific guidance for fiscal 2018. Trussell says failing to deliver on previous guidance and leaving the market mostly in the dark about what to expect in the coming year is no way to reassure shareholders.

Despite the lackluster quarter, Jefferies analyst Randal Konik sees the post-earnings dip as a buying opportunity. Konik says Jefferies’ long-term bullish growth thesis for Nike remains intact.

Jefferies sees evidence that Adidas’ recent market share gains have now peaked and the cyclical strength in the global athletic footwear market will persist.

Konik says Nike remains a market leader in product innovation, pricing power and gross margins.

“Traffic at athletic and sporting goods retailers is up, and it is likely the only sector to see increasing traffic,” Konik says in a new research note. “This, combined with product innovation (e.g. Air Max in Running), market share gains in [basketball], and, as evidenced by our data work, a growing retro trend, fortifies Nike’s solid positioning in the category.”

Despite a strong overall market, Nike shares are down 15.9 percent in the past year. Both Deutsche Bank and Jefferies maintain…

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