A disappointing earnings report from Nike Inc (NYSE:NKE) didn’t answer the question of when investors are finally going to find that elusive floor in NKE stock.
The market headed into Nike earnings with tempered expectations as it was, and NKE still fell flat with a sales miss and disappointing futures orders. Analysts stood firm in their generally bullish views on Nike stock, but this report doesn’t feel like the catalyst for an inflection point. Sideways trading seems the more likely course.
The most glaring weakness in Nike’s quarterly revenue — which missed Wall Street’s expectations — came on its home turf of North America. The company is simply not as competitive in the basketball category as it once was.
Adidas is scoring points with retro shoes and Under Armour has an endorsement deal with NBA superstar Stephen Curry. NKE is getting stuffed by this double team.
Analysts at Morgan Stanley note that Adidas’s U.S. footwear sales grew 26% year-over-year in April and May while Nike’s declined by 4%. As for Under Armour, the Stephen Curry basketball shoes have taken NKE to the market-share hole to the tune of 8 percentage points.
For the quarter as a whole, North America sales were flat. Worse, they’ve hit the dreaded “D” word of deceleration. Orders for future delivery, the most critical measure for future demand, rose 6% in the quarter. A year ago, North America futures orders grew 13%; last quarter they rose 10%.
NKE Stock on the Skids
With all this going down, no one cares that Nike earnings beat Street estimates. For the fiscal fourth quarter, NKE recorded profits of 49 cents a share. Analysts on average forecast earnings at 48 cents a share, according to a survey by Thomson Reuters. Even with the earnings beat, Nike’s EPS was still unchanged year-over-year.
And then there was the matter of lackluster top-line growth. Revenue rose almost 6% to $8.24 billion, but analysts were looking for $8.28 billion.
In another bit of bad news the market doesn’t want to hear, NKE is still clearing a glut of inventory, pressuring margins. And then, of course, there are forex exchange headwinds that have only gotten stiffer on Brexit fears.
It’s a mess, but the value buyers have to step up to NKE stock at some point, don’t they? Shares were flirting with 52-week lows even before the troubling report. Indeed, Nike stock is down to changing hands at less than 19 times forward earnings. That’s a bargain for a stock that usually trades at closer to 23 times forward earnings.
Besides, isn’t the cavalry coming? The current quarter should get a boost from LeBron James leading the Cleveland Cavaliers to their first NBA title. The summer Olympics are only months away.
Yes, absolutely, it is far, far too soon to feel sorry for Nike — to say nothing of writing its epitaph — but for now it looks like the bias remains to the downside. In a market wracked with Brexit anxiety, struggling stocks don’t get the benefit of the doubt for long.
Nike is probably going to have to prove itself with a slam-dunk current quarter before sentiment turns on Nike stock. The three months to go until the next earnings report feels like an ice age.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.