The reaction to Nike’sthird-quarter earnings report was mixed. While some cheered it had beaten Wall Street expectations, others were concerned by a 2 percent drop in gross margin — the proportion of each dollar of revenue that Nike can count as profit.
It marks the fifth straight margin decline for Nike, reported at 43.8 percent on Thursday, but analyst Sam Poser of Sterne Agee still says the stock is a “buy.”
“Considering how big their future orders were, up 18 percent, we still think these guys are the one to beat in the space,” said Poser.
Poser has a $125 price target on the stock, an increase of about $17 from Friday's share price .
“They’re working their way through a lot of product cost increases, and clearing out some apparel inventory out of China and western Europe,” said Poser, referring to the gross margin drop. With the summer Olympics in London coming up, Poser thinks lower sales in China and Western Europe will pick up.
“It’s an event that can really change things. Their future orders in Europe were up 10 percent last quarter,” he added.
The past five Olympics have each provided a 24.5 percent boost to Nike’s stock on average, according to Barclays.
“In many Olympics, they set up new ideas and technologies, which have grown tremendously in the years following, such as the ‘Lunar series’ — now a $2 billion retail platform of athletic shoes,” he said.
Lunar products were launched during the Beijing Olympics in 2008.
Thus, despite what looks like an economic contraction in Europe, Poser remains bullish: “Overtime, we still think the margins will come back, and I wouldn't be surprised to see them significantly better in fiscal 2013.”
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Sam Poser does not personally own NKE shares, but Sterne Agee makes a market (matches buyers and sellers) of the stock.
Follow Jennifer Leigh Parker on Twitter @jparker741 .