Shares of Nike (NYSE:NKE) have had a sharp run-up since Christmas Day 2016, and we think that run still has lots of fuel left. Connecting the dots between our online channel checks, investment bank's Black Friday channel checks, macro retail reports, and what big retailers like Macy's (NYSE:M), Kohl's (NYSE:KSS) and J.C. Penney (NYSE:JCP) have told us about the Holiday season, we think Nike did extraordinarily well in November and December. Macroscopically, it looks like footwear and cold wear were bright spots for apparel this holiday season, and Nike appears to have excelled in both categories. We continue to like the stock here and believe the valuation has room to expand if the company can successfully meet or exceed its high-single digit revenue growth target for the year.
We have observed the following highlights of Nike regarding the Holiday 2016 shopping environment.
- Kohl's reported strong footwear sales, and Kohl's footwear is Nike-dominated. Despite an overall disappointing holiday report, Kohl's did say that footwear was a bright spot in November and December. That is huge for Nike because Kohl's footwear is almost entirely dominated by Nike-owned brands. Nike brand and Nike-owned Converse shoes are the top-selling Men's, Women's, Boys and Girls shoes on Kohls.com.
- Macy's reported strong apparel sales across Men's, Women's and Children, with particular strength in active and cold-weather merchandise, and it looks like Nike led that charge. Again, despite an overall disappointing report, Macy's did point to strength in apparel across all demographics, with particular strength in active and cold-weather merchandise. Our channel checks suggest Nike was the main driver of this strength. On the Men's side, Nike sweaters/sweatpants are the top-selling active apparel products on Macys.com. On the Women's side, it looks like North Face was the top-selling active wear brand during the holiday season, but Nike appears to have strongly outperformed rival brands Under Armour (NYSE:UA) and Adidas (OTCQX:ADDYY). Meanwhile, Nike has the strongest presence among the top-selling active wear items on Macys.com for both Boys and Girls.
- J.C. Penney reported strong outerwear sales, and it looks like Nike products in the outerwear category sold quite well. While JCP cited weakness in the Womens apparel business, the company also cited strength in outerwear. On the Men's side, Nike looks to have done quite well in the outerwear category, with several of the best-selling Men's hoodies and some of the best-selling Men's active jackets on JCPenney.com.
- Online channel checks suggest that Nike is dominating the performance basketball market. As we pointed out in our last article, the underlying dynamics in the NBA coupled with bullish management commentary certainly make it feel like Nike is recapturing its dominance in the performance basketball market. Post-holiday online channel checks seem to affirm this. Led by strength in the Kyrie, LeBron and Jordan lines, Nike basketball is dominating the best-selling basketball shoe lists on Footlocker.com (NYSE:FL), Finishline.com (NASDAQ:FINL), Dickssportinggoods.com (NYSE:DKS) and Eastbay.com.
- Separate retail reports corroborate a strong athletic footwear environment. From multiple reports, it seems as though athletic footwear at-large sold well in November and December. Fung Global's Black Friday channel check showed footwear strength, Piper Jaffray called Black Friday footwear traffic and conversion rates encouraging, and NPD Group pointed to a last week surge in athletic footwear sales.
It is important to note that these bullish signals are mostly on the wholesale side of Nike's business, which has quickly turned into the low-growth component. If DTC growth remains on track due to new store openings plus e-comm build out and couples with revamped growth in the wholesale business, Nike could have big upside to their current revenue growth targets for both Q3 and the full year. In such a scenario, we think this stock has tremendous upside from current levels.
Disclosure: I am/we are long NKE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.