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Nike : Faces a Tougher Bracket -- Ahead of the Tape

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03/20/2017 | 07:42pm CEST
By Steven Russolillo 

March Madness represents the woes faced by Nike Inc., both literally and figuratively.

The sportswear company and its affiliated Jordan Brand outfit 40 of the 68 teams in this year's NCAA Men's Basketball Tournament, making them by far the most visible logos on shoes and jerseys, according to Sports Business Daily. But that number is down from 41 last year and 48 in 2015. More schools are sporting gear from rivals Adidas AG and Under Armour Inc.

It isn't just on the basketball court either. This is the quandary facing Nike on a global scale as intensifying competition and changing fashion styles have weighed on the company's performance.

Nike's stock dropped 19% last year, making it the biggest loser in the Dow Jones Industrial Average. It was the stock's worst one-year performance since the financial crisis. While shares have regained some ground in 2017, investors might be too late trying to catch this bounce ahead of Nike's fiscal third-quarter results on Tuesday.

Analysts polled by FactSet estimate Nike earned 53 cents a share in the period ended in February, down 2 cents from a year earlier. If history is a guide, Nike is all but assured to exceed that figure; it has beaten earnings estimates all but once over the past five years.

Revenue has been a different story, as it has fallen short of consensus views in three of the past five quarters. Analysts this time expect revenue to have increased 5.4% to $8.47 billion. That would mark the ninth consecutive quarter of single-digit-percentage sales growth. It also would be roughly one-third of the rate at which Nike grew almost three years ago.

Much of that slower growth is due to the crucial North American market, which makes up about 45% of Nike's total revenue. Revenue in North America is expected to have increased 2.3% from a year ago, among the slowest rates over the past five years.

At the same time, rival Adidas has caught fire in Nike's homeland. The German athletic-gear giant has said it would continue to invest disproportionately in the U.S. to maintain its recent momentum and to revamp its Reebok brand.

Earlier this month, Adidas projected it would increase its North American sales nearly 50% by 2020 to $5.3 billion. While a fraction of Nike's total, continued growth for Adidas likely would come at Nike's further expense.

Nike's stock also isn't as attractive as it was as recently as the end of last year. Trading at 23 times projected earnings over the next 12 months, its forward multiple is richer than its average over the past five years. By comparison, its multiple briefly went below 20 in late November when the stock bottomed.

Just like a heavily favored No. 1 seed that suddenly looks vulnerable, Nike has a target on its back.

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Financials ($)
Sales 2017 34 304 M
EBIT 2017 4 626 M
Net income 2017 4 030 M
Finance 2017 3 166 M
Yield 2017 1,29%
P/E ratio 2017 23,04
P/E ratio 2018 21,53
EV / Sales 2017 2,57x
EV / Sales 2018 2,43x
Capitalization 91 261 M
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Mean consensus OUTPERFORM
Number of Analysts 36
Average target price 62,4 $
Spread / Average Target 13%
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Mark G. Parker Chairman, President & Chief Executive Officer
Eric D. Sprunk Chief Operating Officer
Andrew Campion Chief Financial Officer & Executive Vice President
Philip Hampson Knight Chairman-Emeritus
Alan B. Graf Independent Director
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NIKE INC8.52%91 741
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