Nike's Run Facing an Uphill Climb
June 24 2016 - 7:32PM
Dow Jones News
By Sara Germano
Athleisure may be the style trend of the moment, but looking
sporty may not be enough for Nike Inc. when it reports fiscal 2016
results Tuesday.
Analysts have adopted an unusually bearish tone toward Nike with
at least four firms downgrading its stock within the past two
months. Among concerns: whether Nike's North American business can
continue to post sales growth amid rising inventory and supply
chain stumbles, according to reports from Morgan Stanley and Cowen
& Co.
"The U.S. athletic apparel category is weakening and competition
is increasing," wrote Morgan Stanley analyst Jay Sole this month,
noting that the stock "doesn't fully account for the risk" of a
U.S. sales slowdown. Nike's shares have fallen 16% this year.
Analysts polled by FactSet expect profit for the three months
through May to fall to $831 million from $865 million a year ago.
Revenue is forecast to rise to $8.3 billion from $7.8 billion.
Any hiccup would be unusual for the world's largest athletic
gear maker which has posted continuous quarters of year-over-year
revenue growth since the recession and is the clear global market
share leader in all footwear, according to Euromonitor. It's most
prominent endorser, basketball star LeBron James, last week ended a
52-year title drought in Cleveland by clinching the NBA
championship for the Cavaliers.
But the sportswear industry is going through a raft of changes
as competition intensifies. In the past year, several retailers
which carry Nike products have filed for bankruptcy or liquidation.
Nike's primary competitor, Germany-based Adidas AG, is rebounding
from its recent nadir, after a management shuffle and heavy
spending to boost sales in North America. Under Armour Inc. is
planting roots in Nike's backyard in Portland, Ore., and making
progress on high-profile athlete endorsements. Meanwhile, the
women's athletic apparel market has ballooned to roughly 700 brands
tracked by retail analysts at NPD Group this year, as the
athleisure trend continues.
Nike watchers are also bracing for the formal resignation from
co-founder Phil Knight, who said this spring he would step down as
chairman in June and fully hand over leadership to Chief Executive
Mark Parker.
The company is pushing to reach an internal goal of $50 billion
in revenue by 2020, while doubling its sales to women and directly
to consumers over the same period. (Last fiscal year, Nike had
$30.6 billion of sales.) To do so, Nike is planning to launch a new
version of its Nike+ app which will combine training tips and
workout tracking with a customized online store, stocked with
coveted releases of limited-edition shoes.
Already, Nike's drive for more online and direct sales is
squeezing some of its longtime retail customers. The Sports
Authority Inc. and City Sports Inc. both filed for bankruptcy and
liquidation within the past year, in part because of tougher
competition for online sales. Mom-and-pop sneaker shops have said
they have trouble keeping up with big chains like Foot Locker Inc.
in speed of ordering and securing coveted Nike product.
Another challenge, notes Mr. Sole of Morgan Stanley, is the fact
that Under Armour has taken 800 basis points of basketball footwear
market share from Nike, largely due to the popularity of signature
shoes for NBA MVP Stephen Curry. (Not to be confused with the
latest release of a sneaker for Mr. Curry, which was widely
mocked.)
Nike, for its part, has been making changes and working toward
its lofty goals. It has shifted several management roles this
spring, most recently appointing company veteran Craig Zanon to
helm its global basketball category.
The management change follows a few worrisome signs in the
market. Foot Locker last month posted a rare decline in its core
basketball shoe business, noting that sales of Nike signature
basketball shoes for Mr. James and Kevin Durant have slowed, in
part because they're more expensive than Mr. Curry's sneakers.
Write to Sara Germano at sara.germano@wsj.com
(END) Dow Jones Newswires
June 24, 2016 19:17 ET (23:17 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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