Nike Tops Q1 Street, But Falls Short in Key Metric

Nike released its first quarter earnings Tuesday, blowing past Wall Street’s gloomy earnings predictions but falling short in future orders.

The sportswear brand posted earnings per share of 73 cents on revenues of $9.1 billion, up 8 percent from the same period last year. This easily topped predictions by analysts, who had pegged EPS at 56 cents. Nike said share buybacks and a lower effective tax rate helped bolster EPS.

“Fueled by an incredible summer of sport, Nike delivered strong global growth and led the industry through disruptive innovation,” said Nike Chairman, President and CEO Mark Parker.

But while news was good in revenue terms, Nike is still fighting to bolster its future orders, which many analysts see as too low. Future orders are viewed as a key metric for a company like Nike, as they help investors get an idea of the demand for Nike’s shoes at retail.

Future orders globally were up 7 percent, just under the 8 percent analysts had anticipated, including fluctuations in currency. In the U.S. the picture was more bleak, where futures were up just 1 percent for the quarter, far below the 5 percent Street expectation.

While still the world’s largest sports apparel and footwear business by a considerable margin, Nike is facing stiff competition these days from longtime rival Adidas and relative newcomer Under Armour, and it’s looking increasingly likely that the company will fail to meet its 2020 sales targets.

That being said, Adidas and Under Armour both have a long way to go before their revenues reach Nike’s heights. The brand hit total revenue of more than $30 billion in fiscal 2015. By comparison, Adidas pulled in $18 billion and Under Armour made just under $4 billion.

But both brands are making Nike sweat. Adidas sales surged 21 percent in its most recent quarter while Under Armour sales soared 28 percent.

Nike also has an inventory problem, as unsold product continues to pile up. The Beaverton, Ore.-based company reported inventory was up 11 percent compared to the same period last year

Part of the problem may be related to Nike’s basketball category, which is hurting in the wake of Under Armor’s red-hot Stephen Curry deal. At the same time, the brand is fighting larger shifts in consumer preferences, which are currently trending towards more casual sneakers like those sold by Adidas.

Nike knows it’s in trouble, and replaced its former head of global basketball Michael Jackson earlier this year. The company is also trying to counter Under Armour with lower-priced versions of its LeBron James and Kevin Durant basketball shoe lines, but that has hurt margins, which were down 2 percent compared to the same period last year.

In after-hours trading Thursday, shares of Nike dropped more than 4 percent. The stock is the worst performer on the Dow Jones Industrial Average this year, down about 11 percent as of Tuesday’s close, and is on pace to become Nike’s first annual decline since 2009, according to Bloomberg.

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