By Cody Miecnikowski
Athletic retailer, Nike Inc (NYSE: NKE) made headlines last week as the company delivered quarterly earnings and revenue that topped Wall Street’s expectations. Nike beat expectations for the eighth quarter in a row as the company sold more high-margin shoes and higher priced apparel. In addition, Nike raised its sales growth forecast for the current fiscal year, and recorded a surprise rise in growth of future orders.
On Thursday June 25, the world’s largest footwear maker posted fiscal fourth-quarter earnings of $0.98 share and $7.78 billion in revenue. This topped analysts’ expectations of $0.83 share and $7.69 billion in revenue.
After the closing bell on June 25, Nike’s shares were up more than 3% in after-hours trading. The stock closed on June 26 at $105.22 and increased to $109.71 in after-hours trading.
“Fiscal 2015 was an outstanding year for Nike,” said Nike’s president and CEO Mark Parker in a conference call that took place on June 25. He continued, “Our consistent growth is fueled by our connection to the consumer and our ability to deliver innovation at an unprecedented pace and scale.” He added, “At no time in history has the growth potential been greater for Nike.”
Nike’s growth has been fueled by high-margin shoe sales. Nike’s higher margin basketball shoes, including the Jordan, Lebron, and Kobe shoe brands have been especially popular in America this year. The basketball shoes have become the company’s fastest growing footwear business. Additionally, running shoe sales rose in the fourth quarter, easing concerns of slowing demand.
Nike pointed out that sales of high-end merchandise played a big role in boosting gross margins by 60 basis points for the quarter.
The company also noted that international merchandise orders slated for delivery until November 2015 rose 13%. This excludes currency fluctuations at the end of the fourth quarter. On average, analysts were expecting future orders growth to slow to 10.4% from 11%.
Nonetheless, as of May 31, overall inventory was up nearly 10%, in part by a 13% increase in Nike Brand wholesale unit inventory.
Other catalysts driving up Nike’s share price include a recent deal with the NBA and its continued share buyback program. In early June 2015, Nike signed a new deal with the NBA in which the sports retailer will become the official apparel provider on court for the league starting with the 2017-2018 season. Furthermore, as part of a four-year, $8 billion share buyback program, Nike repurchased 6.8 million shares for about $678 million during the fourth quarter.
CEO Mark Parker pointed out that, “Repurchasing our shares is a prudent use of our cash.” He continued to say that this “repurchase program demonstrates our continued confidence in Nike’s strategy to generate long-term profitable growth and strong cash flow, and reflects our commitment to delivering value to our shareholders.”
So far this year, Nike shares have outperformed the S&P 500, rising 9% year-to-date. However, Nike has lagged behind some of its competitors like Under Armour and Luluemon, which rose more than 20% during the same period.
Analyst Camilo Lyon of Canaccord Genuity weighed in on Nike on June 26, maintaining a Hold rating while raising his price target to $104. Lyon observed, “Given [Nike’s] discipline with supply of inventory, we believe it can deliver another year of solid growth in the category. As for running, [Nike] is seeing strength in its performance category, and more importantly it will likely introduce a new running innovation at next year’s Olympics.”
Camilo Lyon has an overall success rate of 65% recommending stocks with a +10.3% average return per recommendation.
Analyst Sam Poser of Sterne Agee CRT also maintained a Neutral rating on Nike on June 26. Posner remains Neutral on Nike “despite the fact that [he views] the company as best in [the] breed.” He sees “the 13% increase in future orders [as] very powerful, as is the strong growth across almost all categories & geographies.” However, the analyst is “a bit surprised the inventory levels were up 10%.”
Overall, Poser has a 73% success rate recommending stocks with a +19.8% average return per recommendation.
On the other hand, Piper Jaffray analyst Erinn Murphy reiterated an Overweight rating while boosting her price target from $115 to $120. Murphy noted, “Clearly, the brand continues to gain share globally and we are pleased that its most established market, North America, is still seeing mid-teens growth.” Furthermore, “Gross margin improved and was up +60 bps, ahead of our +30 bps estimate.”
Murphy currently has a 57% overall success rate recommending stocks with a +3.8%% average return per recommendation.
Out of the eight top analysts polled by TipRanks, four analysts are bullish on Nike and four analysts are neutral. The average 12-month price target for Nike is $112.00, marking a 2% potential upside from where the stock is currently trading. On average, the top analyst consensus for Nike is a Hold.