If we’re facing an uncertain economic climate, Nike (NYSE:NKE) isn’t showing any signs of it. While not completely devoid of drama, Nike stock has dominated the athletic footwear and apparel market. Since the beginning of this year, shares have gained 32%. NKE currently sits at $84.98 as of this writing.
Better yet, the entire industry has, so far, registered outstanding performances. Chief rival Adidas (OTCMKTS:ADDYY) is up 24% year-to-date. Under Armour (NYSE:UA, NYSE:UAA), which lost some of its shine over the past few months, is enjoying a resurgence, having gained 37% YTD. Lululemon Athletica (NASDAQ:LULU), too, has come alive in 2018, more than doubling.
All of this is a net positive for NKE stock, as the underlying company is set to release its fiscal first-quarter 2019 earnings report early next week. Wall Street will dissect the numbers to ensure that the trajectory can sustain itself. Whatever happens during Q1 could impact the broader sector.
Here are five earnings-related aspects to watch ahead of Nike’s first-quarter report:
[Editor’s note: This story was originally published on Sept. 21, but we’re bumping it to coincide with Nike earnings today.]
The Colin Kaepernick Effect: Asset or Liability?
Let’s get right to it: the most anticipated component of the Nike stock earnings disclosure is NFL quarterback Colin Kaepernick. Nike featured the controversial athlete in a much-anticipated advertisement. Some analysts believe the ad will spark a revenue boost for fiscal Q1. However, a nagging issue remains.
Kaepernick stormed into a mass-public debate when he initiated a national anthem protest. His reason for doing so are noble. African-Americans have been on the receiving end of police brutality, and he wanted to bring this plight attention. You don’t have a better spotlight than America’s most popular sport.
On the flipside, several Americans are understandably upset. Not standing (when you’re more than capable) during the anthem is incredibly disrespectful. Moreover, these protests occurred when the players are on their employer’s clock. Conservatives angrily retorted that protesters should voice their opinion on their own time.
History, though, is replete with examples where advocates for justice forced the majority public out of their apathetic stupor. Honestly, most Americans don’t care about police brutality because it doesn’t affect them. But Kaepernick has proven to be a poor spokesperson for his cause. In 2016, he wore socks depicting police officers as pigs. That’s where most people draw the line: law enforcement officers are first and foremost human beings.
As you can see, this is a hot potato few want to touch. So it’s going to be very interesting to see how the American consumer responded to the Kaepernick ad. While early indicators suggest that the ad was a success for NKE stock, I want to hear the full story.
Can Nike Reverse Concerning Trends in Footwear Sales?
Source: Alessio Jacona via Flickr
Everybody, of course, knows Nike as primarily a manufacturer of athletic shoes. The company’s first star-endorsement was track-and-field legend Steve Prefontaine, who helped establish Nike as the premier shoe for runners. No matter what new ventures lie ahead, Nike stock will always be a footwear investment.
That is still very much the case. In 2016, North American sales totaled $14.76 billion. Footwear accounted for nearly 63% of total sales, or $9.299 billion, representing year-over-year growth of 9%. The following year represented a concerning slowdown in growth. As, in 2017, Nike delivered $9.684 billion in shoe sales, or 63% of total revenue, for 4% YoY growth. By fiscal 2018, Nike’s footwear sales had full-on reversed course, tallying $9.322 billion sales, 62.7% of total sales, for a 4% decline in growth.
Analysts picked up on this trend late last year. At the time, industry experts noted that consumers gravitated toward casual footwear that emphasized fashion over function. That caused Nike to lose market share in athletic shoes, something that hadn’t happened for 15 years. This explains why Nike stock experienced significant turbulence throughout 2017.
The athletic-market resurgence affirmed the long-term thesis in NKE stock. However, the issue regarding casual footwear remains. For the company, fashion is a natural byproduct, not the main course. To have confidence in the current rally, investors will look for evidence that legitimate, athletic shoes are on the comeback.
Forward Guidance Signals Direction of NKE stock
How management guides its future earnings expectations is always a top priority among analysts and investors. For the upcoming NKE stock earnings report, guidance will have a more significant meaning than usual.
I’m very curious as to what the leadership team says about, not only their forecasts for the company, but also the consumer economy. First off, among its rivals, Nike stock is in a unique position. Adidas has experienced significant choppiness on its journey this year. Under Armour, which was on a tear early on, is now down 18% since the close of June 8.
Is Nike stock just experiencing a temporary lift against its rivals, or is its impressive performance sustainable? The guidance will clue us in on the company’s future direction. We may also hear about upcoming products and ventures that will distinguish NKE from everyone else.
Second, the average price for athletic footwear has slightly declined over the past few years. Seemingly, this trend is positive for NKE stock as it implies consumers have a greater capacity to buy Nike products. It could also indicate softening demand for athletic shoes and increased demand for fashionable casual wear.
Look for Nike’s management to offer clearer insights into the company and industry’s footwear trends.
Nike’s International Revenues
Aside from our own consumer market, I’m curious to find out how Nike views its international presence. For instance, the company scored big when the Nike-branded French national team won soccer’s biggest prize, the World Cup.
Sales of French soccer jerseys boosted sales considerably in Europe, Middle East and Africa markets. That’s not surprising, as soccer is the number one sport pretty much everywhere in the world except for the U.S.
If you watch international soccer leagues such as the English Premier League, you’ll find several top teams wearing the “swoosh.” Undoubtedly, this is a lucrative sector in which Nike routinely clashes with Adidas, and to a lesser extent, Under Armour.
My question is whether the investments are worth it. As I’ve stated previously, sports endorsements have become irrational, and their return on investment questionable. Consider Cristiano Ronaldo, who received a “lifetime” deal with Nike. His light flickered very quickly in the World Cup, highlighting endorsement risks.
How management frames its international business could significantly impact Nike stock moving forward.
Nike’s Equipment Sales to Offer Insights Into Overall Athletic Market
Most analysts have concentrated their discussion on Nike toward its footwear or apparel segment. The division that has experienced the steepest declines, percentage-wise, is sports equipment.
Last year, equipment sales in North America totaled $595 million, down 8% from 2016 when sales hit $646 million. It’s somewhat disconcerting that equipment revenue peaked in 2013, at $867 million.
I say this because we might be seeing a shift in what we consider sports. For instance, almost every major professional sports league, from baseball to auto racing, has suffered viewership declines. People just aren’t as interested in sports anymore, which reflects in the falling equipment sales.
Furthermore, we see e-sports steadily encroaching upon their “analog” counterparts. As a prime example, NASCAR officially endorses a virtual NASCAR league. The stock-car racing league even went so far as to send real drivers to virtual tracks.
That’s the lasting power of e-sports, and it’s not something Nike can ignore.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.