Why Did Nike (NKE) Stock Slide Today?

Shares of Nike (NYSE:NKE) dropped on Monday morning after the sportswear giant received a significant analyst downgrade—amid what has already proven to be rough times for the company.

Jefferies analyst Randal Konik lowered his Nike rating from a “buy” to a “hold.” Konik also dropped Nike’s price target from $75 a share to $60 per share. Konik cited steeper competition in the sportswear sector and overall sales declines as a few of the biggest reasons for the downgrade.

Konik also pointed directly to Adidas AG’s (OTC:ADDYY) strong outputs and positive outlook as a reason for Nike’s decline.

"The athletic footwear cycle and Nike brand power are strong, but the competitive landscape should make share gains and margin expansion elusive… With expectations for less robust fundamentals, Nike's premium valuation conflicts with intensifying US competition unfolding," Konik wrote in a note. "Adidas has been successful in leveraging the spark from its fashion retro footwear resurgence into other categories like running and athletic apparel."

Jefferies noted that traffic to Nike’s website has slipped, while Adidas’ website has added visitors. Adidas has also grabbed 44% of the secondary shoe market from Nike since January 2015. On top of that, Adidas has stolen some of Nike’s running sector dominance.

Jefferies and Konik point to another overall sportswear trend that might be even more worrying for Nike investors: cultural significance. The firm points out that Adidas’ heavy move into fashion-forward looks and lines, including partnerships with Kanye West and Pharrell Williams, has served the company very well in terms of slowly eroding Nike’s U.S. dominance in the “cool” department.

The note points out that premiums paid for high priced Adidas sneakers have risen to near the level of Nike’s high-end lines over the last few years.

Shares of Nike dipped by as much as 3% Monday morning and now hover down around 2.6%. Nike is currently a Zacks Rank #3 (Hold) and scored a “D” grade for Value and Momentum in our Style Scores system.

Bottom Line

Nike’s cultural clout in the sports world is unlikely to disappear overnight. But investors might begin to consider the frailty and fickleness of fashion as Adidas cuts into Nike’s sales and style status domestically.

Sports Industry Down

Nike’s stock has also been hurt as sporting goods retail companies have tanked in the last month due to an array of factors. Foot Locker’s (FL) recent rough earnings report sent its shares plummeting on Friday, and the sports shoe retailer’s stock price sank roughly 4.50% again on Monday to reach a new 52-week low of $32.55 a share.

Big 5 Sporting Goods (NASDAQ:BGFV) and Dick’s Sporting Goods (NYSE:DKS) both saw their stock prices fall over 1% on Monday to near year-long lows. Shares of Finish Line (NASDAQ:FINL) plummeted 8.63% to reach a new 52-week low of $9.89 per share.

The brands that these sports retailers sell have also been dragged down because of poor overall sales and Nike’s woes. Shares of Under Armour (NYSE:UAA) sunk by 3.48% to hit a new 52-week low, while Columbia Sportswear (NASDAQ:COLM) and Adidas dropped marginally.

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