Nike Inc (NYSE:NKE) stumbled into its fiscal first-quarter earnings report on Sept. 27, with Nike stock down 11% on the year and analysts removing it from their preferred lists.
Analysts were expecting earnings of 56 cents per share, a little over $750 million, on revenues of $8.87 billion, with some whispering it might go as high as 58 cents per share.
Achieving even the lower number would have still meant earnings growth of 14% year-over-year, against last year’s 49 cents. That’s why Dan Burrows wrote, before earnings, that you should love the stock regardless of the number.
Instead of hitting those marks, the company blew out the estimates with earnings of $1.2 billion, 73 cents per fully-diluted share, with revenues of $9.06 billion. The company’s only negative news was saying future orders, on a currency neutral basis, were up 7%, against an analyst estimate of 8.3%.
Somehow, that was enough of a reason for traders to dump the stock. Shares fell 4.3% during the first hour of after-market trading, to below $53. The action was similar to what has been happening with other American “brand” stocks like Walt Disney Co (NYSE:DIS) and Starbucks Corporation (NASDAQ:SBUX), both under pressure through 2016 despite good financial performances.
Still Need the Shoes?
Analysts say that young buyers in the $35 billion a year athletic shoe industry now prefer throwback shoes like Adidas’ (OTCMKTS:ADDYY) Stan Smith line over basketball shoes, and that Nike is not up with the trend toward wearing athletic shoes at the office, because Nike’s are “too” athletic.
Even the main basketball shoe line is said to be under pressure from Under Armour Inc (NYSE:UA), which signed Golden State Warrior Guard Stephen Curry to an endorsement contract and are following it up with fashion-forward merchandise.
Nike sported a “U-shaped” stock pattern going into earnings, with a wobble on Monday, a plunge on Tuesday and a rally on Wednesday. The pattern was an exaggerated version of how the broader market behaved.
Time to Buy?
Nike stock bulls are pointing to a new line of soccer shoes designed to be seen on autumn nights, due out Oct. 3, and the self-lacing HyperAdapt shoes, due out Nov. 28, as the start of the company’s comeback.
Others were looking to technical factors as a reason for investors to buy Nike’s “worry” quarter. NKE’s price-to-earnings multiple, which fell to a low of 22, would be well below its average over the next three years.
A reduced number on inventories, and even a slow deterioration of sales, might also produce a buying opportunity, these bulls said.
A Curious Reaction for Nike Stock
Traders found an excuse in the order number to sell the shares in the after-hours market, dropping Nike stock below $53, a 4% drop. That softened to 2% declines in Wednesday’s regular trade.
While that price may look fair to traders, it may look like a bargain to patient investors.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
