Ahead Of Earnings, Nike Faces Adidas At Home And Puma Abroad

Despite continued softness in the U.S. and Canada — and challenges from the likes of Adidas, Under Armour and Puma — Nike (NKE) nevertheless topped expectations during its fiscal second quarter.

Estimates: A 22% profit decline to 39 cents a share on a sales gain of 2.6% to $8.39 billion. Expect North America sales figures to be scrutinized — revenue for the region fell 3% in Q1 and management already cautioned over the summer to expect another sales decline in Q2.

Results: EPS only fell 8% to 46 cents on nearly 5% revenue growth to $8.55 billion, topping expectations.

North America sales, excluding currency changes, fell 5%. Europe, Middle East and Africa revenues grew 14%. Greater China sales popped 15%. Asia Pacific and Latin America sales gained 8% during the quarter.

"This quarter, led by our Consumer Direct Offense, we accelerated international growth and built underlying momentum in our domestic business," said Nike CEO Mark Parker in a statement. "For the back half of the fiscal year, NIKE's innovation line-up is as strong as it's ever been and we'll continue to actively shape retail through new differentiated experiences."

Stock: Shares of the Dow component were down 0.2% in late trade after closing up 1.8% to 64.77 in the stock market today, buoyed earlier Thursday by Finish Line's (FINL) earnings report.

Nike is extended from a 57.35 buy point. Under Armour shares rose 2.2%.

The rundown: Nike reassured Wall Street types at its investor day in late October that the brand's innovation, international sales and direct-to-consumer strategy would help it reach its goal of high-single-digit revenue growth and midteens profit growth over the next five years.

Expect to see more of those "differentiated experiences" in the near future as Nike looks to set its products apart, likely through special displays, in brick-and-mortar stores.

Reigniting sales in the U.S. and Canada is expected to take a while.

"While we don't doubt Nike's potential to reaccelerate over time with new innovation on board, the market is still in turmoil in (North America) and we'd expect a reset in its home market to extend beyond the back-half of this year," wrote Piper Jaffray analyst Erinn Murphy last week, raising her price target on the stock to 58 from 50.

Challenging Nike at home is Adidas (ADDYY), whose multiyear comeback has surprised some people with its endurance. The No. 2 sports brand in the world, Adidas also delivered a shocker Stateside, claiming the second-place spot in U.S. sport footwear over the summer and  bumping down Nike's classic Jordan Brand, according to NPD Group sports industry analyst Matt Powell.

Citing SportScan data (which does not include all distribution channels, providing a partial picture of Nike's sales), Wedbush analyst Christopher Svezia said last week that Nike shoe sales had "weakened as the quarter progressed, reflecting significant (average selling price) pressure particularly for the Nike brand."

Concern about weakness in Nike's North America sales has largely been offset by mid- to high-single digit growth in its markets abroad, led by China.

But just as Adidas crept up on the Swoosh, so could Puma start to give Nike a run for its money in Europe.

"Internationally, we still see growth in China but note the competitive landscape in Europe has been even steeper, with Puma's reacceleration as illustrated in our model," said Murphy.

Rihanna, Kylie Jenner, The Weeknd and Selena Gomez are all high-profile celebrity endorsers of Puma.

"We believe Puma is becoming an increasing source of pressure on Nike mindshare and continue to monitor its brand development," she said.

At least for now, Nike shoes will still dominate the space under the Christmas tree this season, outshining Adidas and Under Armour as the sports brand that Americans love to gift, according to recent Cowen poll numbers.
https://www.investors.com/news/nike-earnings-preview-shoe-giant-faces-adidas-at-home-and-puma-abroad/

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