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Nike's Investments Propel Results; Shares Fairly Valued

We plan to raise our fair value estimate by a mid-single-digit percentage, but investors should wait for a better margin of safety before diving in.

Wide-moat

Despite sluggish North American wholesale performance caused by intense competitive pressures, we think Nike’s focus on building out its direct channel is prudent, particularly given consumers’ penchant for purchasing online. This also brings merchandise closer to the end consumer and enables the firm to respond to customer preferences faster (including more personalization), which should lead to higher sales and margins. We see this channel helping North America return to a positive growth trajectory in fiscal 2019 (we estimate a low-single-digit percentage), which qualitatively aligns with management’s newly issued guidance. Although Nike’s investments to support this channel and product design pressured operating margins by 190 basis points to 13%, we view this spending as supporting its competitive edge longer term.

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About the Author

John Brick

Equity Analyst

John Brick, CFA, is an equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers retail defensive names, including large general merchandise retailers, sporting good manufactures, and grocery/distribution names.

Before joining Morningstar in 2017, Brick worked at Arkansas-based Stephens Inc. where he covered various consumer companies. Prior to that, he worked at Chicago-based Vilas Capital, where he was a generalist on a long-short hedge fund. Brick began his career at Northern Trust as a private equity analyst.

Brick earned a bachelor’s degree in finance, with minors in economics and decision sciences, from Miami University’s Farmer School of Business. He holds the Chartered Financial Analyst® designation.

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