Nike loses footing on revenue miss
March 22, 2017
Nike Inc. on Tuesday reported fiscal 2017 third quarter earnings that mostly beat analyst expectations, but Wall Street took a dim view of the report, sending shares down nearly 6%, because it also showed a revenue miss. Q3 revenues rose 5% to $8.432 million, just missing the Zacks Consensus Estimate of $8,446 million.
Net income in the quarter rose 20% to $1.1 billion and diluted earnings were up 24% to 68 cents per share, handily topping the Zacks estimate of 52 cents per share.
Inventories were $4.9 billion, up 7% compared to the prior year, as a 3 percent decrease in Nike Brand wholesale unit inventories was offset by increases in average product costs per unit and higher inventories associated with growth in direct-to-consumer sales, according to a press release. For that brand, DTC revenue rose 13%, driven by 18% growth in e-commerce, new store expansion and 6% same-store store growth, the company said.
The Nike brand is getting hit by increased competition in North America: Overall sales are driven by double-digit growth in Western Europe, Greater China and the Emerging Markets. Revenues for its smaller Converse brand fared better, reaching $498 million in the quarter, up 3% on a currency-neutral basis, driven by growth in North America.
Speaking to analysts on Tuesday, CEO Mark Parker emphasized Nike’s strength worldwide. “[O]ur global diversification provides unrivaled agility and scale to sustain growth over the long-term,” he said, according to a transcript from Seeking Alpha. “From North America to Western Europe to Greater China, we are running a powerful global offense, where we continue to develop deep relationships and bring excitement to consumers all over the world.”
Parker also said that the company is leveraging data and changing manufacturing operations to speed its supply chain and improve inventories of better-selling styles. “By editing out 25% and amplifying the productivity of both new innovations and the products consumers already love, we’re driving more growth and choice from fewer styles, and we’re already seeing positive near-term returns from our work here,” he told analysts. “Edit-to-Amplify is a mindset that reaches well beyond product. It’s about prioritizing every step along the way, from the category to GO's to cities, to accounts, all the way down to the door level.”
The competitive heat emanates from its adversaries in the top three — Adidas, which took back the number two spot last year, and Under Armour, which forfeited it. But analysts at retail research firm Jane Hali & Associates said the company “has taken strides in the right direction to compete with Adidas globally.”
Those strides are found in the company’s footwear offering, its efforts to appeal to more women and its streetwear merchandising, Jane Hali analysts said in a note emailed to Retail Dive. “During Fashion week we saw a significant amount of new drops in part with luxury brands like Comme de Garcons — including a new Nike Lab opening within Bergdorf’s men’s store, which featured the latest collaboration with Tisci ahead of its release date,” according to the note. Plus, Nike has formed partnerships with the NFL, MLB and U.S. Olympic Committee, and this year it will become the official apparel provider of the NBA, JHA analysts noted.
Analysts were also cheered by the diversity of Nike’s appeal to a wide swath of consumers. “[T]hey are expanding their footprint at moderate retailers across markets like Famous Footwear, Kohl’s and JC Penney,” according to Jane Hali’s note. “Our conclusion is that these extensions will not cannibalize their premium business [because] the product offering is different.”
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