Ahead of the Tape: Nike Can Regain Its Stride After Results -- WSJ
September 27 2016 - 3:02AM
Dow Jones News
By Miriam Gottfried
After weak results on the home court, Nike is playing defense in
North America.
The sportswear giant's revenues in the region decelerated during
its fiscal fourth quarter ended May, coming in flat year over year.
Even after adjusting for a timing shift from last year's West Coast
port delays, that was still a slowdown from the previous
quarter.
Increased competition in the basketball segment from rival Under
Armour was partially responsible. But lower-priced versions of its
LeBron James and Kevin Durant basketball shoes may be helping it
push back.
Accelerating same-store sales reported recently by Foot Locker
and Dick's Sporting Goods bode well for Nike's North American
business. The two retailers purchased 72% and 20% of merchandise,
respectively, from the brand in fiscal 2015. Improvement in North
America and its effect on bolstering Nike's average selling price,
along with conservative guidance for the quarter and a new
partnership aimed at cutting manufacturing costs, could help
investors regain confidence in the company's profit trajectory.
Analysts expect Nike on Tuesday to report fiscal first-quarter
earnings of 56 cents a share on revenue of $8.9 billion. That
compares with per-share earnings of 67 cents on revenue of $8.4
billion in the year-ago quarter. Nike itself said its gross margin
would fall by 1 percentage point in the quarter, driven mostly by
currency effects, and that revenue would climb only mid-single
digits year over year. Many analysts say that guidance sets up an
easily clearable hurdle.
Meanwhile, Nike is working to cut costs. In August it announced
a partnership with private-equity firm Apollo Global Management. As
part of the agreement, a new company was formed to purchase Nike's
existing apparel suppliers in North and Central America. This will
increase manufacturing capabilities in those regions and shorten
lead times.
Granted, Nike's "futures orders," which reflect products
scheduled for delivery, tend to decelerate after the Olympics.
Stronger competition from Under Armour, Adidas and Puma also
remains a risk. But Nike is well aware by now of the need to
develop new products to maintain and grow its share. And its
challenges may already be priced in. At 21.6 times forward
earnings, Nike shares now trades just below their five year average
multiple.
Investors won't have to jump quite so high to score.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
(END) Dow Jones Newswires
September 27, 2016 02:47 ET (06:47 GMT)
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