Appealing on paper, Nike needs to show results – Nike Inc. (NYSE: NKE) –

Appealing on paper, Nike needs to show results – Nike Inc. (NYSE: NKE)


It's time for Nike (NKE) to prove that it can be one of the best bets in the sportswear space.

On December 21, the company Swoosh will report the results of its fiscal 2Q18. The Street expects revenue of $ 8.39 billion to drive a rebound in the growth rate of the top line, after reaching a minimum of 0.1% last quarter due to the absence of tailwinds at the Olympic Games. EPS expectations are set at $ 0.40, a significant reduction in risks compared to the consensus estimate of $ 0.54 from about three months ago.

(This is what Cristiano Ronaldo thinks about NKE bears Credit: HD Wallpaper)

In front of my mind, the health of the American business, which represents almost half of Nike's sales, has shown signs of weakness the last times. Well-known domestic trends such as the threat of "death from shopping malls" and Amazon (AMZN) have been serving as strong winds against the brick-and-mortar retail channel, which seems to have played a role in the impressive fiscal results of 1Q18 of Nike on the wholesale side of the business. On the international front, I expect to see a continued strength from Asia and Europe, as Nike seems to be driving an impulse that could be driven by its strong football / soccer roots a couple of quarters before the 2018 FIFA World Cup. [19659002] Further down in the P & L, I will be curious to see the profitability path, after the gross margins and op fell in twelve consecutive months in the most recent quarter (see GAAP trend below), with the first coming to the 2014 levels. With the digital channel becoming increasingly relevant, the company could face difficulties this quarter. If Nike can manage G & A a bit more aggressively than last quarter, when this line of expenses increased well ahead of the top line trend by 8% year-on-year, there is a possibility that the growth estimates of the 8% earnings are conservative.

NKE Gross Profit Margin Data (NYSE: TTM) from YCharts

In the Nike inventory

I recently put forward my arguments about why I think NKE is a better choice than Under Armor ( UAA). But that does not mean that the action is obvious. Nike faces enough challenges of its own, particularly in the USA. UU And specifically in footwear, which should not be taken for granted.

However, in relative terms, I continue to find the name one of the most attractive moves within its peer group, possibly next to Lululemon (LULU). Qualitatively, the brand is one of the most emblematic in the world of sports, and I believe that loyalty should be rewarded with a couple of laps in the multiple premium rating on most competitors. Quantitatively, I believe that Nike's drive to market directly to consumers and its early badociation with Amazon (AMZN) plays along with industry trends.

Still operating with modest gains and PEG multiples of 24.0x and 2.4x, respectively, I think NKE could be worth it at current levels. And if the company delivers a convincing quarter this month, the bull's box could be much stronger.

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I wrote this article myself, and expressed mine opinions I am not receiving compensation for it (other than Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

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