NKE Nike Inc

By Steven Russolillo 

In the Dow Jones Industrial Average's march to 20000, Nike Inc. is conspicuously absent.

The retail giant is one of only two blue-chip stocks that are down in 2016. And it is the worst performer, off 19% this year and down by roughly one-quarter since peaking in November 2015. The worry is that changing fashion trends and intensifying competition are eating away at Nike's global dominance.

But the stock rarely stays this depressed for long. And after several lackluster quarters, Wall Street has uncharacteristically lowered the bar for Nike heading into Tuesday's earnings report, possibly providing a rare buying opportunity for this highflier.

Analysts expect fiscal second-quarter earnings of 43 cents a share, an estimate that was as high as 52 cents over the summer. The lowered consensus forecast is the first time in at least a year that Nike analysts have cut their views prior to an earnings report, according to FactSet.

The worries aren't without merit, of course. Rivals such as Adidas AG, Under Armour Inc. and Lululemon Athletica Inc. continue to encroach on Nike's turf. But Nike is no stranger to competition. Its shares have had only six down years over the past three decades. The only time that they ever dropped in consecutive years was in 1983-84, when it was losing market share to then-upstart Reebok.

Even then, the tough times didn't last long. Nike shares accumulated six consecutive years of double-digit percentage growth through the early 1990s. And overall, the stock has gained 15% annually since its initial public offering 36 years ago, nearly double the pace of the S&P 500.

For Nike to get back on the right foot, it must prove to investors that it has a plan to fend off its rivals. A tweak to its earnings release could offer it that chance. Tuesday's release will mark the first time Nike won't report so-called futures orders in its quarterly report.

The stock often traded on this metric as opposed to top- or bottom-line growth. But Nike said future orders don't mean as much as they once did because the company is selling more items directly to consumers either through its retail outlets or online. Sure enough, sales guidance in recent years has typically been a better predictor of sales growth than future orders. Nike has said it would still discuss futures orders on conference calls with analysts and in regulatory filings.

Nike also has a compelling valuation on its side. It fetches 20 times projected earnings, its cheapest multiple since 2013.

Had Nike shares just been flat this year, the price-weighted Dow would be about 80 points higher than it is now. Investors who "just do it" might finally help spur the long-awaited Dow 20000 celebration.

(END) Dow Jones Newswires

December 19, 2016 15:05 ET (20:05 GMT)

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