The Ratings Game: Nike says children are a key customer group, analysts say women should be too

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Nike Inc. says children don’t get a lot of attention when they announce earnings, but they should.

Nike’s NKE, +0.15%  Chief Executive Mark Parker said the children business is a “critical” one for the company, and the most recent back-to-school season was a blockbuster.

“Overall, children’ footwear and apparel just experienced its biggest back-to-school season ever, driving double-digit growth for the quarter,” Parker said on the company’s earnings call, according to a FactSet transcript.

Parker said the growth cut across both boys and girls, included the basketball category, and was in the triple-digits in the Air Max 270 business.

“We see more parents buying on our apps, so we continue to invest in more dynamic imagery on our digital platforms, and we’re testing new business models through membership to make it easier for parents to buy at the pace that their children need new product,” Parker said.

Nike stock surged in early trading after the athletic giant reported earnings and sales that beat expectations.

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Nike stock was up 4.2% in Wednesday trading, closing at a record $90.81.

In addition to children, women are a big opportunity for the company.

“The quarter showed that Nike is finding ways to make its brand more relevant to a broader set of consumers,” wrote UBS analysts led by Jay Sole. “Women’s represents Nike’s largest opportunity.”

UBS quoted Euromonitor data showing that Nike only commands 0.6% of women’s apparel share, with the women’s business steady at 22% to 23% of overall sales for five years.

“We believe women’s outgrew men’s in Q1 and accelerated quarter-over-quarter,” UBS wrote in a note to clients. “If Q1 represents the start of a new, long chapter for Nike where it gains women’s apparel share, it would mean big earnings per share and stock price upside.”

UBS rates Nike stock as neutral and raised its price target by 9% to $95 from $87.

“Nike continues to see success in launching and scaling new product (Joyride, newer Air Max 720/200 franchises, Adapt) and targeting under-penetrated areas including women’s, with the pipeline remaining full into the 2020 Tokyo Olympics,” wrote Baird analysts in a note.

Baird rates Nike stock as neutral with a $92 price target, which it raised from $87.

Parker and other Nike executives also see the potential in the women’s business. Parker said the company saw double-digit growth in women’s “off the back of an incredible summer of celebrating female athletes.”

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Chief Financial Officer Andrew Campion said the women’s apparel business in North America is growing at “a very strong rate.”

Susquehanna Financial Group, looking at the broad picture, said there is momentum across geographies and channels as well as product categories.

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“The company continues to take share by: 1) delivering more compelling innovation at a faster pace than competitors; and 2) continuing to enhance customer engagement via digital platforms,” analysts wrote.

Susquehanna rates Nike stock as positive with a $106 price target, raised from $100.

Nike shares have gained 22.5% for the year to date while the Dow Jones Industrial Average DJIA, -0.26% is up 15.6% for the period.