Nike Lacks Dazzle, Frazzles The Market

Nike shares dropped like an air ball yesterday — more than 7% — after a fiscal Q3 2017 and conference call late Tuesday revealed good earnings but an uncertain future in a world gone digital and with stiffer competition from Adidas. It was the biggest price decline for the Beaverton, Ore.-based shoe-and-image maker’s shares since the company went public in December 1980. 

Analysts called the better-than-expected earnings “low quality” because they were “based on factors like lower expenses rather than higher revenue,” Tonya Garcia reports for MarketWatch.

“Canaccord Genuity analysts were among those calling the EPS result ‘low quality’ because it was ‘through tighter expense management,’ the company’s ‘triple-double strategy,’ new cushioning technology in some of shoes — like the Nike Zoom VaporFly 4% coming in June — and shortening the lead time in its production process. This ‘accounted for all the upside,’ they wrote in a Wednesday note,” Garcia continues.



And talk about berating a player giving its best on the floor: “If it weren't for Nike, the Dow would be positive right now,” reads the headline atop Lauren Thomas’ story for CNBC. “Closing under $54 per share, Nike’s performance shaved more than 20 points off the Dow Jones industrial average for the day.” 

Nike “expressed a bullish sentiment” on the earnings call “regarding growth opportunities outside of the U.S.,” Thomas reports, but “remains more cautious about its North American businesses. ‘We have very strong momentum’ in international markets,” said CFO Andrew Campion. “Meanwhile, the North America retail landscape is not in ‘a steady state,’ he said.”

Indeed, “sales climbed 9% in China and 8% in emerging markets in the quarter,” Lauren Gensler reports for Forbes. “Nike is also broadening its offerings and recently introduced a plus-size line and a performance hijab for Muslim women. It's also opening up mini-stores in hundreds of J.C. Penney locations.” 

What’s left of them.

“A sneaker homage to the cult classic film ‘Space Jam’ was a smash hit, but the retro shoes were a rare highlight in otherwise troubling results for the world’s largest athletic company,” writes Sara Germano for the Wall Street Journal. “Nike brand president Trevor Edwards said a recent rerelease of a sneaker worn by Michael Jordan in the 1996 film was ‘the largest and most successful shoe launch in the history of Nike.’ Nonetheless, the company’s sales missed expectations and profit margins were squeezed.”

“For decades, Nike has built market share on the strength of its coveted sneakers, especially those worn by Mr. Jordan. But the business model by which those shoes are sold is changing, as the company is moving away from its traditional role as a wholesaler and tightens its grip on product releases,” Germano continues.

“Nike CEO Mark Parker said that ‘the economics of brick-and-mortar retail’ is one of the factors that ‘is driving a more promotional environment in the near term,’” Paul R. La Monica writes for CNN Money. “He added that ‘the retail landscape, particularly in the U.S., is not in a steady state. I think that's obvious.’”

Indeed, Parker also “told analysts that the consumer ‘has decided digital isn't just part of the shopping experience. Digital is the foundation of it.’ He added consumers expect more from brands when it comes to personalized service, a faster pace of innovation, and a better in-store retail experience,” John Kell reports for Fortune

“Nike is aiming to address all of those elements: the company is trying to offer more services like personalized shopping, quickening the pace of innovation to get new product on store shelves faster, and also working with stronger retail partners like Foot Locker and Dick's Sporting Goods to better present Nike goods. Nike, like Adidas, is also taking more ownership of its own fate by focusing more attention on their own physical stores,” Kell writes.

“Executives said that Nike brand future orders were down 4%, or 1% on a constant currency basis, compared to the same time last year, reports Jessica Dye for Financial Times

“While acknowledging that futures ‘are an important part of our operating model,’ CFO Campion maintained ‘futures growth is no longer a reliable proxy for revenue growth’ for several reasons, including its current focus on increasing profitability, ramping up innovation both in terms of product offerings and its supply chain and improving digital platforms in order to pivot more quickly in response to rapidly shifting consumer taste, Dye continues, citing three analysts who agree with the company’s “relative shrug-off of future orders in favor of focusing on its projected revenue growth.”

LeBron James, “Perhaps Nike’s premier pitchman ... didn’t sound too worried about the news,” writes Joe Vardon for  

“Uh, listen, at the end of the day if Nike hits the fan, then we’re all in trouble,” James said. “Everybody.”

Not sure I agree with the logic, but there you have it from the big guy.

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