Nike Lacks Margin Visibility, Suffers 'Difficult' Growth Comps

Nike Inc (NYSE: NKE) will likely continue to face challenges in the medium term, with intensifying competition in the United States and as “the product pendulum swings away from some of the company’s key categories,” Wedbush’s Christopher Svezia said in a report. He initiated coverage of Nike with a Neutral rating and a price target of $53.

Competition Intensifying

Checks indicate the company could witness further market share losses into the first half of 2017, analyst Svezia mentioned. He added that while fashion trends appeared to be shifting, Nike’s products had “a lack of newness.”

A recent Business of Fashion article pointed out that competitors like adidas AG (ADR) (OTC: ADDYY) and Under Armour Inc (NYSE: UA) were developing new products at a faster pace, making it even tougher for Nike to compete.

Low Margin Visibility

“For several quarters, margin visibility has been difficult due to a combination of factors including supply chain disruptions, slowing orders, TSA bankruptcy and f/x,” Svezia wrote. He expects inventory challenges to continue exerting pressure on Nike, while ASP benefits moderate.

Tough Near-Term Comps

Although Nike is generating significant growth outside North America, and could record double-digit growth this fiscal year ending May 2017, the company’s growth in key markets like China and Western Europe was slowing due to difficult comparisons.

Nike’s shares could sell off into the year-end, since traders often sell stocks of companies that have reached new 52-week lows.