Morningstar

Nike: After Solid Quarter, Our Thesis Intact

Based on the current quarter's momentum and the strong engagement reported from the new advertisement featuring Colin Kaepernick, we think management's full-year guidance is conservative.

Securities In This Article
Nike Inc Class B
(NKE)

Wide-moat

Nike’s ability to balance lifestyle versus performance goods highlighted our belief that the firm will be able to cater to consumer demands through fashion cycles, justifying our wide moat rating. In the quarter, Nike’s brand intangible assets helped it sustain top-line growth in the historically challenged North American segment, while keeping inventory flat helped the firm achieve 50 basis points of gross margin lift (to 44.2%). We believe the brand assets helped the firm create new digital partnerships with Jet.com, Flipkart, and WeChat, which will continue to aid performance in the digital channel. Finally, we are encouraged by the firm's continued investment in supply-chain and cost initiatives seen in the invention of the new plant assembly process for its Advanced Product Creation Center that reduces labor needs by 50% and cuts overall product creation cycles in half (rapid prototyping and 3D printing).

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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