Nike has a monster rally ahead as it appears to be solving biggest problem, analyst says
- Nike reported strong second-quarter earnings in December.
- The sneaker giant released its comprehensive quarterly financial report, 10-Q form, on Tuesday.
- The 10-Q suggests the company has successfully solved its inventory problem and is getting boosts from China and other regions, said Oppenheimer analyst Brian Nagel.
- Watch Nike trade live.
Nike is well positioned to rally as data suggests the company has solved its inventory problem, an analyst says after examining details of the company's second-quarter financial results.
The sneaker giant released its comprehensive quarterly financial report, 10-Q form, Tuesday. Highlights of the solid results — including a strong Jordan brand and healthy global sales — were first posted on December 20.
"Data in Nike 10-Q supports further an impressive Q2 report," Brian Nagel, an analyst at Oppenheimer said in a note distributed on Wednesday. He believes Nike shares will rally to $90 apiece — 17% above where they were trading Thursday.
What stands out from Nike's financial numbers is a tightened inventory level. Data shows that Nike sales growth has consistently outpaced inventory growth by more than 8%. Because Nike is selling more products, it has managed to increase its average selling price, which led its gross margin to grow, according to Nagel.
Being able to tighten inventory is a breakthrough for Nike. Last year, the company nearly lost its crown as king of the sneaker market because it overproduced its high-end shoes, making its popular Jordan Brand too easy to get and not as cool. But now it seems Air Jordans are cool again. In December, CEO Mark Parker told investors its Jordan Brand saw double-digit growth in North America in the second quarter, a huge driver for its overall revenue growth.
And China market is another sweet spot for Nike. The company's wholesale sales were up 31% in China on a currency-neutral basis, while sales in other regions shared were all up around 10%. "We view this acceleration in China wholesale as a sign of Chinese retailers’ confidence in both upcoming Nike releases and the overall Chinese athletic sector," said Nagel.
Nagel added that rising momentum can be seen in both Nike's footwear and apparel sales.
"We remain impressed with Nike and the efforts of the company to capitalize meaningfully upon a new, enhanced digital infrastructure to better connect with consumer and improve operational prowess of the company," said Nagel.
Nike was up 20% in the past twelve months.
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