Nike Faces a Tough Road Ahead

After a sluggish start to the year, Nike Inc (NYSE: NKE) stock is finishing 2017 on a high note, gaining nearly 20 percent in the path three months. Nike has overcome the headwinds that held the stock back in the first half of the year, but it may be difficult for the company to do the same in 2018.

Much of Nike’s recent success has been driven by its strong international performance. In the most recent quarter, Nike reported 19 percent sequential revenue growth in Europe, the Middle East and Africa and 16 percent growth in China. Nike also added international market share and gained traction with its membership program.

Canaccord Genuity analyst Camilo Lyon says Nike appears to be on the right path, but additional upside for the stock may be limited for the time being.

“North America continues to suffer from a highly promotional environment, and while NKE is bringing meaningful innovation to market in late Q3, the scale and volume needed to create a healthier marketplace may not be sufficient until [fiscal 2019],” Lyon says.

Nike has also entered into strategic partnerships with (AMZN) and subscription box retailer Stitch Fix (SFIX) to test new ways to get its products to consumers. Jefferies analyst Randal Konik says these types of initiatives won’t move the needle much for Nike in the next several quarters, but they are a step in the right direction for long-term investors.

Konik says more brands will likely opt for wholesale partnerships with Amazon in an attempt to chase the modern retail shopper.

“We believe this is a sound strategic move, so long as [brands] ensure that pricing and presentation remain up to their standards and that product is segmented between channels, as to not upset their existing wholesale partners,” he says. “Along the same lines, we are not surprised to see NKE partnering with Stitch Fix, given the growing popularity of subscription box services, especially with millennial consumers.”

For investors to capitalize on these Nike initiatives, Lyon says they will need to be patient.

“Overall, we believe the outlook for NKE is improving, but the pace of improvement appears to be weighted to [fiscal 2019], and tax reform is an incremental headwind to earnings,” Lyon says.

Canaccord Genuity has…

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