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Canaccord Genuity on Apple, McDonald's, and Nike


Apple apologizes for its maps, McDonald's gets downgraded, and Nike was helped by better sales and gross margin.

Nike (NYSE:NKE): Your Shoelaces Are Untied.

Nike's adjusted Q1 EPS of $1.27 exceeded Canaccord Genuity Consumer Products Analyst Camilo Lyon's $1.15 estimate and the consensus of $1.12. Relative to Lyon's model, better sales and gross margin helped by $0.07 while lower shares/other income helped by $0.05. Despite the beat, Lyon notes that futures tell a mixed story. Global futures of +8% were comprised of +5% units and +3% average selling prices. North America (+13%) continues to power ahead while Western Europe (+6%) surprisingly held in. China (-6%) was the negative outlier, weighing on shares Friday.

Gross margin guidance was moderated to flat from up slightly due to regional mix (North America is lower margin), innovation investments, and further discounting pressure in China. On a positive note, inventory was +10%, in line with sales as post-Olympic inventory is clean. The inventory issue in China is likely to get worse before it improves and we suspect it will take Nike two to three quarters to fully right-size. With China correcting, no discernable sales catalysts and moderating price increases, Lyon maintains a neutral rating on Nike shares, but raised his price target due to the flow through of the Q1 EPS beat.

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No positions in stocks mentioned.
Canaccord Financial and its affiliated companies may have a Corporate Finance or other relationship with the companies mentioned and may trade in any of the Designated  Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage herein.
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