Nike (NKE): Top analyst sees surging brand mojo

Nike (NKE) is currently experiencing positive brand momentum across its key franchises, according to an analysis by Bernstein's Aneesha Sherman. This momentum is particularly evident following an assortment reset earlier in 2024, which has led to improved brand metrics for some of Nike's most iconic products.

However, despite these positive developments, the analyst remains cautious about the short-term movement of Nike's stock, highlighting potential catalysts and challenges in the coming months.

Nike's Pegasus line, a cornerstone of the brand's running shoe category, has shown notable improvement since the assortment reset in Q2 2024. This reset has resulted in higher average selling prices (ASP), fewer markdowns, increased consumer search interest, and positive feedback from retailers.

These factors suggest that the Pegasus franchise is regaining its strength, with new product releases driving renewed consumer interest and reducing the need for price cuts to clear inventory.

In addition to the Pegasus line, Nike's Jordan, Dunk, and Air Force 1 (AF1) franchises are also showing signs of recovery, although the progress varies across different sales channels. The assortment corrections for these lines are more advanced in Nike's direct-to-consumer (DTC) operations than in wholesale channels.

This difference is partly because Nike has more control over its own inventory and can more quickly implement changes in its DTC channels. In contrast, adjustments in wholesale orders take longer to reflect these changes.

For the Jordan and Dunk franchises, the analyst notes a steady improvement in consumer interest, with five consecutive weeks of increasing search activity. This suggests that the assortment changes and new product introductions are resonating with consumers.

The AF1 line, while also showing improvement, is slightly behind, with three weeks of increasing search interest and less newness in the product lineup so far.

Despite these positive trends, Sherman points out that Nike's stock may remain relatively flat in the short term. The key driver for future stock movement will be the "brand heat," or the level of consumer excitement and demand for Nike products.

If this excitement fails to materialize quickly, the stock is unlikely to see significant gains until key upcoming events.

One potential catalyst for Nike's stock could be the company's Q1 earnings results, expected in late September. If the results meet or exceed expectations, and management highlights the success of recent innovations, this could provide some support for the stock.

Another important event is Nike's investor day on November 19th, where the company is expected to provide medium-term guidance and possibly announce a leadership succession plan. This event could significantly impact investor sentiment and drive stock movement, depending on the details revealed.

While Nike is showing positive signs of brand momentum across its key franchises, the short-term outlook for the stock remains uncertain. Investors are likely to be cautious until there is clearer evidence of a significant uptick in consumer demand and brand excitement.

Upcoming events, including the Q1 earnings release and investor day, will be crucial in determining the stock's trajectory in the near term.