Nike (
NKE
) recently released its fiscal Q3 2011 earnings, and based on
continued pressure in gross margins and other evident trends, we
have updated
our price estimate for Nike to $76.52
, which is roughly in line with market price. Nike
remains the largest global manufacturer of athletic footwear,
apparel and equipment by sales volume, and competes with Sketchers
(
SKX
), Adidas AG (
ADS
), Steven Madden (
SHOO
) and K-Swiss (
KSWS
) in the global footwear market. It sells its products under
several brands including Nike, Nike Golf, Converse, Cole Haan,
Umbro, and Hurley.
Nike Sees Expansion Opportunities, but Expects Continued
Gross Margin Pressure
Nike has mentioned that two geographies remain very important
for revenue expansion - North America and China. North American
growth will be driven by consumers' continued loyalty to trusted
Nike brands as the economy improves. While China also presents
notable opportunity for revenue growth, costs could become an issue
for Nike.
The company recently stated in its earnings transcript:
"As we look to the next few quarters, we expect continued
strength in consumer demand as well as intensifying gross margin
pressure from input cost inflation and from airfreight
… For the full year FY '11, we continue to expect gross
margin will be at least 50 basis points below the prior year
."
As a result of these concerns, we have maintained our gross
margin expectations for 2011, expecting a decline of about 0.5%. We
think that gross margins will take another year to recover as Nike
gradually implements price increases to offset the impact of added
costs.
The chart above lets you examine how your own forecasts for Nike
brand footwear gross profit margin affects the company's stock
value. Check out
our full model
and apply your forecasts to other product segments to see how
broader changes to Nike's gross profit margins could impact the
company's stock value as well.
For further detail on the factors described above, see our
previous articles titled
Nike's Commodity Costs Rising, but Expansion Opportunities
Could Lift Stock
and
Nike's Capacity to Raise Prices Can Neutralize Impact of
Rising Input Costs
.
See our full analysis and $76.52 price estimate
for Nike stock