Nike Suffers Worst Decline in Nine Months as U.S. Slump Deepens
(Bloomberg) -- Nike Inc. shares fell the most in nine months after its North American sales slump worsened, overshadowing strong growth in other regions.
The world’s largest sports brand posted quarterly sales that fell short of estimates in its home market, while beating them in Greater China and Europe, the Middle East and Africa.
The results show that Nike still faces a challenge in regaining its footing in the U.S., where several retail partners have faltered and rival Adidas AG has been taking market share. The company succeeded, however, in beating estimates for revenue and has downplayed concerns over its North America results.
“It looks like a tale of two cities,” said Chen Grazutis, an analyst for Bloomberg Intelligence. “International is very strong, and the U.S. is still weaker than a lot of people expected.”
Nike is suffering from a problem that afflicts some other global U.S. brands, including Starbucks Corp.: Sales are booming in markets such as China, but not enough to allay investor concerns.
Nike’s sales grew 16 percent in Greater China last quarter, and 19 percent in Europe, the Middle East and Africa. They dipped 5 percent in North America. Growth in Asia Pacific and Latin America was 6 percent.
The quarter marked the second straight decline for North America. The Beaverton, Oregon-based company has said it would improve results in its largest market by selling to fewer retailers, and instead do more business with chains, like Foot Locker Inc., that focus on athletic gear.
Chief Executive Officer Mark Parker said there was “underlying momentum” in the company’s domestic business during the quarter ending Nov. 30, and the lineup of new products for the next six months is “as strong as it’s ever been.”
Nike shares dropped as much as 7.2 percent to $60.13 after markets opened on Friday, the deepest intraday decline since March 22. The stock had gained 27 percent in 2017 through Thursday’s close.
One bright spot is that Nike’s gross margin narrowed less than expected, even though several of its retail partners have reported a very promotional shopping environment.
A lower tax rate helped propel earnings to 46 cents a share, beating the average analyst estimate of 40 cents. Revenue came in at $8.55 billion, outpacing the estimate of $8.39 billion. Gross margins were 43 percent, compared with the expected 42.5 percent.
On a conference call Thursday, Parker said Nike’s pilot for selling products on the website of Amazon.com Inc. is “going well” and will be extended. The company will also do a test run on Stitch Fix Inc., the online styling service that curates apparel items for consumers based on their preferences.
Randal Konik, an analyst at Jefferies LLC, remained gloomy about Nike’s North American prospects. Adidas still has a small share of the market, giving it room to take more sales from Nike, he said in a note.
“The athletic footwear cycle and brand power are solid, but the competitive landscape should make share gains and margin expansion elusive,” Konik said in a note.
©2017 Bloomberg L.P.