Nike: North America, Management Departures In Focus

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Trevor Edwards Nike's former CEO in-waiting

Nike (NKE) reports quarterly earnings after-hours today. Analysts expect revenue of $8.85 billion and eps of $0.53. The revenue estimate implies 4% growth sequentially. Investors should focus on the following key items:

North America Remains Worrisome

Nike is the leader in high-performance sports and training apparel. The Nike Swoosh is one of the most recognizable logos in the world, but certain regions show signs of cracking. For the quarter-ended November 2017 total revenue of $8.6 billion was up 5% Y/Y. Revenue for North America was down 5%, while Europe, Middle East, Africa (up 19%) and Greater China (up 16%) were stalwarts. North America was 44% of total revenue in the year earlier period, but now represents 41%. The declines in the region were broad-based. North America footwear and equipment were down 7% and 14%, respectively; apparel sales were flat.

Technology and investment in R&D has always been a part of Nike’s culture. Its perception as being a “cool” brand and innovative has separated it from the competition, and allowed the company to charge premium prices. In my opinion, customers will always pay up for performance apparel and Nike remains a leader in technology and innovation. However, customers have been flocking to other brands like Under Armour (UA), (UAA) and Addidas (ADDYY) (ADDDF).

Addidas, in particular, has been growing like a bad weed. It grew total revenue by 19% Y/Y in its most recent quarter. Its revenue from North America was up 36% – that growth has to come from someone else’s hide and Nike and Under Armour appear worse for wear over it. Nike has compartmentalized the major problems to its North America wholesale channel. It is working with wholesalers to help improve the customer experience. It is also transforming and consolidating its wholesale channel which could reduce wholesalers, yet improve quality.

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