Nike's (NKE - Get Report) earnings report disappointed the market, but it shouldn't have, according to the company's top Wall Street analysts. 

The real takeaways on the stock are more nuanced then the headline numbers. But first, let's review the essential facts. 

The Earnings

Revenue was $10.2 billion, beating estimates of $10.16 billion. Earnings per share was 62 cents, missing estimates of 71 cents. Higher expense related to its burgeoning direct-to-consumer business drove the earnings miss. 

The Positives

The 8% North America sales growth means Nike isn't losing much market share at home to threatening new competition like Lulu Lemon (LULU - Get Report) . China sales grew 22%. The China region is somewhat of a growth market for Nike. Direct-to-consumer sales grew 13%, as Nike leans away slightly from department stores, which face headwinds from e-commerce players. 

The Negatives 

The 22% growth in China was a slight deceleration from the 24% growth seen in the last quarter. The higher direct-to-consumer related expenses, which were much responsible for the earnings miss, were mostly from selling, general and administrative. The SG&A expense rose 12% year-over-year and to 33% of revenue, up from 31% of revenue in the same quarter last year. Expenses related to supply chain changes were a small part of the earnings miss as well. 

Here's What Matters

The higher expenses won't cause Nike's margins to compress on a long-term basis, and some of them are very near-term. Any margin expansion would likely be driven by the direct-to-consumer business, which involves a heavy dose of digital sales. Pricing power for Nike, which is number one in many of its product markets, could continue to emerge, driving higher margins. 

"Along with a strong pipeline of platform innovation set to launch across fiscal year 2020, we see Nike building momentum and successfully evolving the business to a higher margin, higher return model," Stifel analyst Jim Duffy wrote in a note. Duffy noted Nike mentioned it expects higher full-priced selling to come in the near future. 

"Underlying revenue and gross margin drivers remain impressive," Morgan Stanley analyst Lauren Cassel wrote in a note. She's looking for EBIT margin expansion of 80 to 100 basis points, lead by higher pricing power. 

Do G20 trade talks matter? Sure, they do, but Nike has diversified its supply chain. That's why it saw higher supply chain management costs, which shouldn't persist long-term. It's not trade proof, but it's far less sensitive to tariffs than it used to be. 

One last thing to consider. 

Nike trades at 27 times forward one year earnings estimates. That's a bit high, but it's justified for those who believe it when Wall Street says EPS can grow by 20% annually for the next few years. 

Related. Nike Could Be Lacing Up for a Rally

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