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NKE: Lower Guidance = Entry Point

Takeaway: Nike's 4Q print was spot-on with our expectations. It's executing as it should. If it sells-off on guidance we'd look for an entry point.

This note was originally published June 27, 2013 at 23:14 in Retail

Nike's 4Q print was spot-on with our expectations. The company is executing as it should.  If it sells-off on guidance we'd look for an entry point.

NKE: Lower Guidance = Entry Point - nik9

The company delivered on the top line, and the combination of strong futures, pricing increases and a favorable event schedule suggests that FY14's top line looks good.  On top of that, gross margins are sequentially improving, inventories look good, and we have good visibility as to the timing of SG&A.

The downside (which we expected) is that the company backed off of its 'high end of mid-teens EPS growth' expectation to something in the 'low double digits'. The primary culprit was Japan, which showed a massive 23% spread between 6% C$ futures and -17% reported decline in the business.  This is all completely manageable in the context of the broader portfolio -- particularly given the portfolio continues to hum. The US continues to crush it, Europe -- both Western and Central -- is stabilizing, and China is finally comping against steep declines at this time last year. 

In all reality, Nike probably set a low bar with its earnings guidance. Our $3.10 for the year is about a dime above where the Street is likely to come in. The only thing that could stop Nike at this point is Nike. With its current management transition of no fewer than half a dozen senior roles, there will definitely be uncertainty in the organization. But aside from the now infamous Bill Perez CEO year (2005/06) we've never seen a Nike management transition that did not work. It's one area where the company is flawless.

And by the way, for anyone who still had a doubt about whether Charlie Denson was pushed out or retired on his own accord, all you had to do was listen to the conference call. It was as close to a love-fest as we've ever heard on a conference call with existing management bidding thanks and well-wishes.