Nike Inc. (NYSE: NKE) has experienced a strong year on the stock market with overall growth when tracking the figures year-to-date. However, trajectory has changed in the market this week, with stock falling by over 3% after the company announced its latest financial data.
Investors are concerned that increased costs will arise due to trade tensions and the strengthening of the United States Dollar.
Key Takeaway Points from Nike Earnings Call
In a conference call with investors, Nike revealed that they expect full fiscal year revenue growth to be as high as 10% in the best-case scenario. The company pointed to positives like the newly released SNKRS App, an online platform that allows for Nike enthusiasts to buy shoes, explore new and old collections, and share their own collections with other users through a social media interface.
The SNKRS App could help to drive new revenue, although it is not yet a true alternative to Nike’s traditional retail model.
Nike’s Chief Financial Officer was optimistic about sales growth, despite the challenges of an increasingly valuable United States Dollar. In the earnings call, Andy Campion said that “We’re off to an even stronger start to the fiscal year than we initially expected. Our currency-neutral growth and profitability is exceeding our expectations. At the same time, global trade uncertainty and geopolitical dynamics have resulted in the dollar strengthening and higher foreign exchange costs.”
Some investors see this statement as a warning that profitability could decrease, which would result in less capital for investment and for returning to shareholders in the form of dividends. Any potential drop in profitability is speculation at this point.
In the last quarter, Nike made revenue of $9.95 Billion, which exceeded analyst targets by as much as $10 Million.
Why Are Investors Worried After a Positive Earnings Call?
Large scale investors are selling Nike because growth does not meet the strongest bull market expectations. Some analysts are hinting at a price target as low as $70, which is more than $10 below the $81.76 trading price of shares today.
Short term investors could take this as a warning to sell while stock is high. Long term investors would in most cases see more value in holding Nike stock, as the company is typically a long term performer that can overcome geopolitical and currency challenges, due to brand presence and high desirability in consumer markets.
Nike’s still up 35.56% for the year-to-date and 60.98% over the last 12 months. This suggests that this week’s stock price decline is not indicative of performance in the long term.
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