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Morgan Stanley Downgrades Nike Inc (NKE); Here’s Why

Nike stock price

Shares of Nike Inc dropped by nearly 3% in the morning trading session after Morgan Stanley downgraded the company’s ratings. The company is facing a strong competition from Adidas and Under Armour Inc  in the United States.

Nike (NKE)

Nike Is Losing Footwear Market Share

Analyst Jay Sole downgraded the rating from Overweight to Equalweight, while lowering the price target to $60 from $69. Sole expects that Nike’s sales would be slow due to weakening in the U.S. apparel category. The analyst noted that Under Armour (NYSE: UA) is increasing its share in basketball footwear.

“Many new entrants are fragmenting the market and Nike is lapping five years of double-digit growth. Retail bankruptcies and consumers’ shift to online shopping has created heavy excess inventory, which is causing LSD ASP declines. We believe Nike’s challenge has been compounded by a major supply chain issue. Off-price channel sales are helping offset and clear goods, but current dynamics could last through CY16,” Sole said, as reported by Street Insider.

“Adidas US footwear sales growth has accelerated and reached 26% y/y in April/May, while Nike’s rate has decelerated to 4%: We believe adidas’ strategic changes are helping it regain US brand momentum. Plus, products such as the Ultra Boost, NMD, Yeezy, Stan Smith, and Superstar are hot fashion items. These facts, plus recent US retailer commentary, suggest trend sustainability,” Sole added.

BofA/Merrill also cut the company’s price target to $60 from $72. The firm believes that the company is losing footwear market share for the first time since 2010.

Nike was the leader in the United States athletic footwear industry in 2015. The company has been top dog in the sports apparel industry for many years. Over the last five years, the company’s stock has slowly but surely grown from roughly $21/share to right around $54.25/share (at the time of publication).

The consensus average recommendation for Nike’s stock is BUY, while the consensus average target price is $72.16. Shares of the company have dropped by 15.08% year-to-date.

Nike Makes Management Changes

Last week, Nike Inc announced that it made management changes “to drive continued innovation and strong consumer connections globally.”

The company appointed Phil McCartney as VP and GM of Nike Footwear, effective June 1. McCartney, which has 19 years of experience at the company, will work with category teams, product development, design, and merchandising.

Tom Peddie, currently VP and GM of Emerging Markets, was named VP and GM of Integrated Marketplace North America, effective July 1. Peddie’s task will be driving a holistic integrated marketplace strategy in North America.

Ann Hebert has been named VP and GM of Emerging Markets. Hebert, whose appointment will take effect on July 1, has served in key management positions in DTC, Sales, Category, and Merchandising. He will work to elevate and create separation in the marketplace.

Christophe Merkel will become VP and GM of Nike Japan, effective July 1. Merkel, currently GM of Nike Turkey, will lead the team to continue driving strong consumer connections in this important market.

Jim Reynolds, currently VP and GM of Nike Japan, has been named VP and GM of Athletic Specialty. Reynolds will now focus on driving the company’s integrated marketplace strategy against Athletic Specialty globally.

Recently, Nike Inc announced that it is expanding its European Logistics Campus in Belgium. This move is aimed at accelerating the company’s drive toward the supply chain of the future. The company believes that the expansion will make its European operations more efficient, more responsive and more sustainable.

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