Nike faces 3 big competitive headwinds
Morgan Stanley analyst Jay Sole downgraded Nike's stock from overweight to equal weight and cut his price target by $9.
Morgan Stanley analysts downgraded Nike’s stock on Wednesday.
In a new note, Morgan Stanley analyst Jay Sole cut his rating from overweight to equal-weight and reduced his price target for the stock by to $60 from $69.
He gave the following reasons for the downgrade:
Apparel slow down: Broadly, there’s been a slow down in US athletic apparel sales. During the quarter, Nike’s core channel apparel sales growth has slowed 1% due to retail bankruptcies and store closures where Nike product are sold resulting in excess inventory. There’s also the continued shift to online shopping.
Adidas: The “biggest surprise” and the newest headwind for Nike has been the resurgence in Adidas (ADDYY) popularity in the US. Adidas, which has benefited from a “combination of hot products, smarter marketing, and better execution,” has seen its US footwear sales growth accelerate by 26% in April/May year-over-year. Meanwhile, Nike has seen a 4% deceleration in the same period compared to the previous year.
Under Armour: In the basketball footwear category, Under Armour (UA) has emerged as a major competitor taking market share. Under Armour has the NBA’s most popular player, Steph Curry of the Golden State Warriors, endorsing its shoes. What’s more is the price point is better with the “Curry 2” shoe retailing at $130 compared to many Nike basketball shoes that go for more than $200.
“Together, these factors create a stiffer headwind for Nike than it has felt in years,” Sole wrote.
Following the report, shares of Nike (NKE) were last trading down 1.2% at $54.55.
Meanwhile, Morgan Stanley remains underweight on Under Armour. The bank’s European brands team recently upgraded Adidas to equal-weight.
On Tuesday, Under Armour cut its sales guidance on the heels of the bankruptcy of Sports Authority. On the heels of that revised guidance, Credit Suisse downgraded Under Armour’s stock to neutral and reduced its price target from $38 to $35.
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Julia La Roche is a finance reporter at Yahoo Finance.
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