Nike Falls After BofA Says Sell As Innovation Lead Seen Eroding

Shares of Nike (NKE) are sliding after Bank of America Merrill Lynch analyst Robert Ohmes downgraded the stock to Underperform, a Sell-equivalent rating, saying he expects share loss to Under Armour (UA) and Adidas (ADDYY) to continue as the companies catch up with market-leader Nike in terms of innovation.

MARKET SHARE LOSS: BofA Merrill’s Ohmes downgraded Nike to Underperform from Neutral, saying he now expects the company’s market share loss to Adidas and Under Armour to continue through 2017. Furthermore, the analyst told investors in a research note that his meetings with manufacturers, suppliers and competitors indicated a potential narrowing of the innovation gap for Nike’s pipeline relative to the competition compared to historical levels. Ohmes noted that not only did Nike not launch a major platform during the Olympics, but he also does not expect any significant new platform launches near-term. Moreover, he believes Nike is at least 12 months away from returning to market share gains, and expects International futures to decelerate as comparisons turn tougher in key markets. Additionally, Ohmes pointed out that direct-to-consumer same-store sales have been supported by inventory clearance and Nike’s comps could slow as inventory normalizes. The analyst lowered his price target on Nike’s shares to $46 from $55.

COMPETITION INTENSIFYING: The re-emergence of Adidas in North America, including investment in marketing and endorsements, and Under Armour’s recent announcement to accelerate global investments may drive an escalation in marketing and athlete/team endorsement costs across the industry, Ohmes contended. Furthermore, the analyst argued that Nike may also be facing more competition for designers, which will only escalate as Under Armour invests more aggressively in its global footwear business.

PRICE ACTION: In morning trading, shares of Nike have dropped over 3% to $50.40.

OTHERS TO WATCH: Shares of Under Armour are down 1% to $30.61, while Adidas shares trading in New York have slipped almost 0.5% to $81.63 per share.