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Stick With Nike

Jul. 05, 2017 11:52 AM ETNIKE, Inc. (NKE)2 Comments
L&F Capital Management profile picture
L&F Capital Management


  • Nike reported strong Q4 results and the stock jumped.
  • Near-term consolidation is expected, but the stock has good long-term upside potential.
  • Selling through Amazon and focusing on global cultural centers remain long-term tailwinds for the company.

As we had predicted in our earnings preview, Nike (NYSE:NKE) stock rallied after a good Q4 earnings report. Although we think the stock could be due for some near-term choppiness, we also believe the secular growth story remains intact and that multiple expansion will drive this stock considerably higher in a long-term window. We remain bullish.

The quarter was quite good. It was a beat on the top and bottom lines. Sales rose 7%, led by growth across most major categories. Running was up 8%. The Jordan brand was up 13%. Sportswear revenues surged 17% higher. The only category that experienced notable weakness was basketball (down 5%), but management once again sounded very bullish about basketball on the call and we reiterate our confidence in this segment being a huge growth driver in FY18. We see the Kyrie Irving, Paul George, and Kevin Durant lines as huge sellers this summer and into the basketball season in the fall.

Gross margins did slip, but the slippage is more a result of FX headwinds than of competitive pricing pressures, so the gross margin degradation should be looked at as a near-term macro headwind, not a long-term Nike-specific headwind. But even with a 160 basis point compression on the gross margin line in FY17, EPS still rose 16% year-over-year due to revenue growth and SG&A leverage. This level of earnings growth should continue into the foreseeable future.

A particular positive from the report is that even though global future orders missed (flat versus expectations for a 1.25% gain), the stock still rallied. This shows that investors are finally buying the company line that global future orders don't carry as much weight anymore considering the seismic sales shift Nike is seeing towards the web and it's branded stores. This is a huge sentiment shift, and removes some

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L&F Capital Management profile picture
L&F Capital Management, LLC, is a quantitative investment management group located in San Diego, California. Our multi-strategy investment approach comprises a mix of event-driven trades and long-term value investments, utilized together to maximize profit in both short and long term scenarios. We maintain consistency in portfolio mix through our long-term value holdings, but stress flexibility in portfolio mix from our daily event-driven trades. We believe this mix of flexibility and value generates both short and long term profits while reducing exposure to market volatility. L&F also shares various trade and investment opportunities through Seeking Alpha. For more information, visit www.lfcapitalmanagement.com.

Analyst’s Disclosure: I am/we are long NKE, AMZN. 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.

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