Advertisement
U.S. markets open in 7 hours 51 minutes
  • S&P Futures

    5,208.50
    -6.25 (-0.12%)
     
  • Dow Futures

    39,208.00
    -15.00 (-0.04%)
     
  • Nasdaq Futures

    18,184.50
    -47.00 (-0.26%)
     
  • Russell 2000 Futures

    2,047.40
    -2.40 (-0.12%)
     
  • Crude Oil

    82.57
    -0.15 (-0.18%)
     
  • Gold

    2,161.60
    -2.70 (-0.12%)
     
  • Silver

    25.26
    0.00 (0.00%)
     
  • EUR/USD

    1.0868
    -0.0008 (-0.08%)
     
  • 10-Yr Bond

    4.3400
    0.0000 (0.00%)
     
  • Vix

    14.33
    -0.08 (-0.56%)
     
  • GBP/USD

    1.2712
    -0.0016 (-0.13%)
     
  • USD/JPY

    150.2640
    +1.1660 (+0.78%)
     
  • Bitcoin USD

    64,886.91
    -3,968.94 (-5.76%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,722.55
    -4.87 (-0.06%)
     
  • Nikkei 225

    39,882.10
    +141.70 (+0.36%)
     

Even LeBron James can't save Nike in a bad market

Nike has been running so fast for so long now that anything less than perfect is a disappointment to its shareholders. And its fourth-quarter earnings on Tuesday were far from perfect, sending the stock down nearly 7% at one point in after-hours trading, though it bounced back on Wednesday morning.

The sneaker retailer just barely beat on earnings per share (EPS) with 49 cents vs. 48 cents expected, but it whiffed on revenue, with $8.24 billion vs. $8.28 billion expected.

The $8.24 billion is a 6% rise over the year before, but it’s still a slight miss compared to expectations, a miss that initially battered the stock on Tuesday. Nike stock is down 15% so far in 2016.

Nike is still the No. 1 sports apparel brand in the world. It dominates the basketball footwear market thanks to Jordan Brand, which was up 18% in the last fiscal year to sales of $2.7 billion, about half the size of its running business. (This is the first time Nike has ever broken out sales of Jordan Brand.) But Nike basketball sales, other than Jordan Brand, fell 1% in the past fiscal year. Nike’s U.S. footwear overall rose just 2% in the fourth quarter, compared to a 16% rise the quarter before.

And there are other signs its business may be slowing down.

The company’s fourth-quarter revenue fell 2% from the year before due to an increase in expenses and a drop in gross margins—two things shareholders don’t want to hear. And a Brean Capital note before the earnings listed troubles like, “Liquidation headwinds, a later stage athleisure cycle and bball pricing” that “likely weigh” on North American revenue for Nike.

Indeed, Nike’s North America revenue in the fourth quarter of $3.74 billion was flat from the year before, with futures up just 6%, the first single-digit rise it has seen since more than a year ago.

Curiously, Nike shares typically drop whenever it reports earnings before a major sports event, according to a recent Wells Fargo note. The company’s stock fell 9% to 10% just before the last two Summer Olympics, and the stock has fallen after 75% of earnings reports that came right before a major sports event. “The stock tends to react poorly heading into the event (somewhat surprisingly),” said Wells analyst Tom Nikic. In other words, the stock might have fallen on Tuesday even if earnings had been good.

There are a number of additional ominous clouds in Nike’s sky. Brick-and-mortar sporting good chains like Sports Authority, City Sports, and Bob’s Stores, chains on which Nike leans heavily, have all filed for bankruptcy this year.

It is facing fierce competition from Under Armour and now from Adidas, its brothers in the sport’s world ‘Big Three.’ Both have made major gains recently. Adidas, especially, after a streak of bad years in the U.S., has made something of a comeback in the States on the strength of hot sneakers like the NMD and collaborations with Pharrell Williams and Kanye West. It is in the process of achieving an impressive turnaround.

In the endorsement world, Adidas has enjoyed great success in golf, with Jason Day and Dustin Johnson rocketing to Nos. 1 and 3 in the world golf rankings and Under Armour golf star Jordan Spieth between them, while the face of Nike Golf, Rory McIlroy, hasn’t won a Major since 2014. In the last year, Adidas made big moves by adding quarterback Aaron Rodgers and NBA star James Harden. Under Armour inked the biggest college sponsorship deal ever with UCLA, and it is about to enjoy a summer of attention on its sponsored swimmer Michael Phelps, returning to the Olympics at age 31.

You might think that the historic, come-from-behind victory of the Cleveland Cavaliers in the NBA Finals, led by Nike’s most prominent athlete LeBron James over Under Armour’s most prized asset Stephen Curry, would have given Nike a boost. And indeed, Nike is seeing “incredible sell-through” of its new LeBron Soldier 10 shoe, which went on sale July 21, said Nike brand president Trevor Edwards. Nike executives opened the earnings call by praising James and his teammates—a mirroring of Under Armour CEO Kevin Plank’s raving about Curry on Under Armour’s earnings call in April.

But elsewhere in the sports world, Nike is wrapped up in an ugly legal battle with 800-meter track star Boris Berian, who left the company for New Balance. As sports blogs have noted, Nike is losing the public opinion battle by attempting to keep Berian from competing.

Nike CEO Mark Parker, who has been praised for bringing a design sensibility to his leadership, still called 2016 “a breakthrough year for Nike in everything we do.” But as reporters observed on Twitter, the earnings call had a distinctly defensive tone to it.

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

Read more:

Maria Sharapova and 5 other athletes Nike dropped

How Olympic gymnast Kerri Strug made one vault last 20 years

Corporate America is drooling over these 2 Mets pitchers– and their hair

How George Foreman III is taking on big gym chains

Advertisement