No tariff fears for Nike after online success
today Sep 25, 2019
Nike Inc's online sales growth and a bullish outlook in China put it on a firm path for years to come and should help it easily ride out rises in U.S. import tariffs on its Chinese-made sneakers, Wall Street analysts said on Wednesday after a strong set of quarterly results.
Shares in the world's biggest sportswear maker surged as much as 5% in early trade after the results late on Tuesday showed its margins soaring and sales up 42% through apps and websites it has developed under its Nike Direct strategy.
That signalled an end to a rough period marked by strong competition from German rival Adidas AG and prompted at least 11 Wall Street brokerages to raise price targets on its stock far above a current $87.
Evercore ISI set a price target of $150, compared with a current Wall Street median of $100.
One big questionmark over Nike has been whether it will be hit in its biggest growth market, China, by a backlash against American-branded goods in response to President Donald Trump's rhetoric and successive rounds of import tariffs.
Instead, Nike's sales there grew 22% year-on-year, extending a run of double-digit growth that goes back five years. Analysts from another major brokerage, Credit Suisse, said China would be a source of growth for many years to come and Chief Financial Officer Andy Campion indicated the company was not experiencing any fallout with Chinese consumers.
"Nike's digital business grew over 70% in China in the first quarter," Credit Suisse analysts said. "And we'd note that this outsized digital growth was without the benefit of the Nike App launch."
Campion said the company would be launching the App in its second quarter ending in November, earlier than previously planned.
Footwear made by Nike and its peers, Adidas and Puma SE , fell under the Trump administration's latest set of tariffs imposed on Sept. 1.
But as well as the bullish results, several of the brokerages laid out a range of different tools Nike would be able to use to either avoid tariffs being applied to some goods, change sourcing or pass more costs onto suppliers and retailers.
"We remain confident that Nike can effectively manage List 4 tariffs due to its sophisticated supply chain and leverage with vendors," Telsey Advisory Group analysts said in a note.
© Thomson Reuters 2020 All rights reserved.