Jefferies Explains Cautious Nike Thesis

Jayson Derrick
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Analysts at Jefferies downgraded their rating on Nike Inc (NYSE: NKE) from Buy to Hold on Aug. 21 under the assumption that the competitive landscape in the athletic footwear business will make incremental share gains and margin expansion "elusive."
On Aug. 25, the analyst double-downed on his downgrade in a video sent to clients.

Nike's dominant status in the footwear space will "remain disadvantaged" by the rising popularity of adidas AG (ADR) (OTC: ADDYY), analyst Randal Konik said. This belief is based on various datasets, including web traffic data that clearly show rising search interest for Adidas while traffic trends for Nike are slipping.

Secondary sneaker market data suggests Adidas has stolen 44 percent of Nike's market share dating back to January 2015, the analyst said. Adidas has also become less promotional versus Nike in its selling activity which may add to Nike's margins concerns.

Meanwhile, a proprietary survey of athletic shoe sellers shows that Adidas was first recommended 27 percent of the time, up from just 7 percent in September, 2016. On the other hand, Nike was the first brand recommended 59 percent of the time which marks a decrease from 80 percent last September.

Finally, Nike will likely be facing SG&A headwinds from ongoing investments to "fend off" Adidas in the U.S. market, Konik added.

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Latest Ratings for NKE

Aug 2017

Jefferies

Downgrades

Buy

Hold

Jul 2017

Morgan Stanley

Upgrades

Equal-Weight

Overweight

Jul 2017

Needham

Initiates Coverage On

Hold

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