What Would Happen To Nike’s Stock IF Footwear Sales Were To Stagnate?

by Trefis Team
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For Nike (NYSE :NKE) over the past couple of years, footwear sales have been a key component of driving their revenue. In the first quarter Nike’s revenue rose by 15% yoy, and revenue TTM came in at $36 billion, we expect that this revenue will increase to $40 billion in 2019. Nike’s Air Max shoes, and in the basketball category KD’s (named after Kevin Durant), and Lebron 16 (named after Lebron James), were a key factor in driving 2018 sales for Nike. But with concerns for slowing growth, Nike’s footwear sales, which make up 62% of total revenue, coming in at $22 billion in 2018, and North American footwear revenue coming in at $9 billion, should the sales of these footwear products decline, the stock may be driven lower. However, should footwear sales remain the same y-o-y, we believe the company will still continue to see an increase in revenue from its other segments; which may be less sensitive to slowdowns.

We currently have a price estimate of $80 per share, which is 3% higher than the market price. You can use our interactive dashboard Nike Downside If Footwear Stagnates to modify key drivers and visualize the impact on Nike’s price estimate.

 

The key risks to sales come from its two biggest markets: the North American market, and the Greater China market where sales came in at $3.2 billion in 2018. The US market has already shown signs of a slowdown, with various economic indicators pointing to as much. This combined with the recent market sell-off, and the yield curve inversion, casts doubt on 2019, leading to Nike’s stock being dragged down with broader market sentiment. Regardless, it is important to note, that consumer confidence and wage growth continue to rise. This should provide continued momentum to Nike’s sales, as consumers may open up their wallets. A lot more serious headwind is present in China, where the economy is believed to be slowing. Many industries have seen a decline, including premium phone sales and car sales. While the latest numbers don’t point to any major fallout to Nike, should the slowdown in China speed up, there very well could be a fallout resulting from slowing revenues.

 

Our base case, should Nike see the same yoy footwear sales, shows the stock may have a downside of 16% . We expect therefore the EPS to come in at $1.35 in Q1 for Nike. Currently Nike stock trades at ~77 dollars. Overall, we believe risks remain on the horizon, but the stock is well positioned to still move on the upside.

 

 

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