NKE: Notes from US visit

4 April 2017 09:21 BST
Company Note | Company Update
Retail - Softlines
 
NKE - Notes from US visit
 

North America wholesale promotion. We believe this is mostly driven by retailers using the strong athletic category as a traffic driver, given the currently weak industry trends. We do not see it as driven by inventory excess, as Nike's inventory position continues to improve - the delta between inventory and sales growth is at its lowest level in two years. We expect that retailers may pull back on promotion on athletic footwear if and when traffic levels revert to more normalised levels, though note that Nike is taking a safely conservative approach to gross margins, not committing to timing the normalisation of promotion.
Product innovation is ramping. Nike is launching three new platforms this year - the VaporMax (launched just a week ago), the ZoomX and a third new cushioning platform (launching later in the year). We are seeing a high level of excitement, both at the company and in the consumer community, with the first VaporMax shoe already sold out. More compelling new products should go a long way to offset mid- and entry-level promotion and help Nike recover lost ground over the last couple of years.
Reiterated long-term growth model. Nike reiterated that on an organic basis (ex-FX), the model remains the same - high-single-digit to low-double digit sales growth and mid-teens EPS growth. The strongest topline opportunities remain the ongoing basketball recovery in the US as well as growth in the performance running category, growth in the underpenetrated young athletes and women's markets, ongoing growth in international (which is not under the same over-retailed pressure as the US).
Store visits confirmed view on good inventory position. Within the wholesale channel, we saw promotion was more concentrated within men's footwear, with women's and apparel looking healthy. Nike still dominates the wholesale channel, both within women's and men's. Within Nike's controlled distribution, it was clear to see the strategy to emphasise the high-end, women's and apparel - from the equal mix in its own store between men's and women's to the very impressive and highly fashionable women's shop-in-shop within Nordstrom's flagship.





Daniela Nedialkova, CFA, Research Analyst
+44 20 7382 2916
[email protected]