During Nike Inc.’s earnings call on Thursday, executives tried to steer Wall Street’s attention to the positives as shares sank: New Jordans; new running-shoe designs; the Summer Olympics next year in Paris. But one analyst said Nike is still spending too much, and had too many rivals selling too many shoes in too many stores.
“Our concerns center around competition from emerging brands with broadening distribution in N. America (e.g. lululemon, HOKA, ON, Skechers, Adidas, Puma) and an overdistributed and over-stored U.S. Wholesale which is prompting lifestyle sneaker fatigue,” TD Cowen analyst John Kernan said in a research note on Friday.
As investors turn their attention to the first quarter, he said that Nike NKE, -2.66% was on track for its “lowest Q1 margin performance in 20 years,” as the company navigates rising prices for basics that have led to weaker demand for non-basics, like sneakers. He cut his price target on the stock to $ 125 from $ 141.
He also said that running-shoe maker Hoka and On Holding ONON, +4.46% which makes On running shoes, added $ 3 billion in sales within the past four years. Over that time, “they spent the equivalent of what Nike spends in two weeks” capital expenditures.
Shares of Nike fell 2.7% on Friday.
Nike on Thursday reported a fourth-quarter profit that missed analysts’ expectations. The company’s forecast sales and margin figures raised concerns about consumer demand for clothing and shoes. Retailers have cut prices on those items in an effort to spark more sales.
The company’s decision to start selling sneakers and clothing again in stores like Macy’s Inc. M, +0.19% and Designer Brands Inc.’s DBI, -0.74% DSW shoe stores also raised questions about how desperate it was to get product sold, and whether it had doubts about its longer-term plans to sell more items through its own website and own retail locations. Nike on Thursday said that long-term strategy hadn’t changed.
Still, analysts at Wedbush weren’t as pessimistic. They pointed to sales growth in North America despite a shakier backdrop, signs of a recovery in China and Nike’s efforts to clear its inventories of unsold shoes and clothing.
“Like Nikola Jokic’s game, it’s not always pretty, but likely good enough to win,” they said in a note on Friday, referring to the NBA star on the Denver Nuggets, which won their first championship this month.
Elsewhere, Jefferies analysts were also upbeat. Analyst Randal Konik said, “We still believe Nike is a best-in-class retailer and will continue to experience strong top-line performance as Digital sales penetration expands, Greater China rebounds, and product innovation accelerates.”
Shares of Nike are up 8% over the past 12 months. By comparison, the S&P 500 Index has risen 17.7% over that period.