Nike Faces a Tougher Bracket -- Ahead of the Tape
March 20 2017 - 02:56PM
Dow Jones News
By Steven Russolillo
March Madness represents the woes faced by Nike Inc., both
literally and figuratively.
The sportswear company and its affiliated Jordan Brand outfit 40
of the 68 teams in this year's NCAA Men's Basketball Tournament,
making them by far the most visible logos on shoes and jerseys,
according to Sports Business Daily. But that number is down from 41
last year and 48 in 2015. More schools are sporting gear from
rivals Adidas AG and Under Armour Inc.
It isn't just on the basketball court either. This is the
quandary facing Nike on a global scale as intensifying competition
and changing fashion styles have weighed on the company's
performance.
Nike's stock dropped 19% last year, making it the biggest loser
in the Dow Jones Industrial Average. It was the stock's worst
one-year performance since the financial crisis. While shares have
regained some ground in 2017, investors might be too late trying to
catch this bounce ahead of Nike's fiscal third-quarter results on
Tuesday.
Analysts polled by FactSet estimate Nike earned 53 cents a share
in the period ended in February, down 2 cents from a year earlier.
If history is a guide, Nike is all but assured to exceed that
figure; it has beaten earnings estimates all but once over the past
five years.
Revenue has been a different story, as it has fallen short of
consensus views in three of the past five quarters. Analysts this
time expect revenue to have increased 5.4% to $8.47 billion. That
would mark the ninth consecutive quarter of single-digit-percentage
sales growth. It also would be roughly one-third of the rate at
which Nike grew almost three years ago.
Much of that slower growth is due to the crucial North American
market, which makes up about 45% of Nike's total revenue. Revenue
in North America is expected to have increased 2.3% from a year
ago, among the slowest rates over the past five years.
At the same time, rival Adidas has caught fire in Nike's
homeland. The German athletic-gear giant has said it would continue
to invest disproportionately in the U.S. to maintain its recent
momentum and to revamp its Reebok brand.
Earlier this month, Adidas projected it would increase its North
American sales nearly 50% by 2020 to $5.3 billion. While a fraction
of Nike's total, continued growth for Adidas likely would come at
Nike's further expense.
Nike's stock also isn't as attractive as it was as recently as
the end of last year. Trading at 23 times projected earnings over
the next 12 months, its forward multiple is richer than its average
over the past five years. By comparison, its multiple briefly went
below 20 in late November when the stock bottomed.
Just like a heavily favored No. 1 seed that suddenly looks
vulnerable, Nike has a target on its back.
(END) Dow Jones Newswires
March 20, 2017 14:41 ET (18:41 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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