Nike (NKE:NYSE) $67.94

Loss to date: 16.9%

Shortly after we recommended the stock on 6 March, sportswear giant Nike (NKE:NYSE) warned its fourth quarter sales would fall by a steeper-than-expected amount.

The company also forecast a 4% to 5% drop in gross margin as it looks to reduce excess inventory of styles which no longer resonate with its customers.

WHAT HAS HAPPENED SINCE WE LAST SAID BUY?

Nike’s shares hit a five-year low on 21 March as investors questioned the speed of the turnaround under new chief executive Elliot Hill.

The company reported a 9% fall in third-quarter revenue to $11.3 billion compared to the same period last year, and NIKE Direct sales were down 12% to $4.7 billion.

Also, chief finance officer Matt Friend said the company expected fourth quarter gross margins to be ‘down approximately 400 to 500 basis points’ compared to the same period last year, including restructuring charges and the estimated impact from newly implemented tariffs on imports from China and Mexico.

WHAT SHOULD INVESTORS DO NOW?

We said at the outset getting the company back up to speed would be a marathon not a sprint, and the fourth-quarter downgrade is clearly a setback, but Nike remains an iconic brand and assuming Hill can make it desirable again there is plenty of ground to make up.

Analysts at US broker Jefferies remain upbeat about the stock, saying in a recent note: ‘Hill is delivering change inside and out. We sense an immediate improvement in company culture has already taken place on the inside, and on the outside, wholesale partners have expressed optimism around what’s to come from Nike ahead.’

With the shares trading at a 10-year low on price-to-sales, any recovery in demand is likely to translate into a V-shaped recovery in the share price, which is impossible to time, so we would continue to hold.

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