NKE Nike Inc

By Sara Germano 

Athleisure might be the style trend of the moment, but looking sporty might 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, adding 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 to fall to $831 million for the three months through May from $865 million a year earlier. 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. Its most prominent endorser, basketball star LeBron James, last week ended a 52-year title drought in Cleveland by clinching the National Basketball Association championship for the Cavaliers.

But the sportswear industry is going through a raft of changes as competition intensifies. In the past year, several retailers that carry Nike products have filed for bankruptcy protection 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 plans to move its global footwear operations to Nike's backyard in Portland, Ore., and is making progress inn securing 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's sales totaled $30.6 billion.) 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 such as Foot Locker Inc. in speed of ordering and securing coveted Nike product.

Another challenge, says Mr. Sole of Morgan Stanley, is the fact that Under Armour has taken eight percentage points of basketball-footwear market share from Nike, largely because of the popularity of signature shoes for NBA Most Valuable Player 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, saying that sales of Nike signature basketball shoes for Mr. James and fellow NBA player Kevin Durant have slowed, in part because they are more expensive than Mr. Curry's sneakers.

Write to Sara Germano at sara.germano@wsj.com

(END) Dow Jones Newswires

June 26, 2016 11:57 ET (15:57 GMT)

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