By Samuel Taube
In this increasingly divided world, we can all agree that it’s fun to kick around a ball or shoot some hoops. And it’s even more fun with a nice pair of Air Jordans. That’s why Nike (NYSE: NKE) has traditionally been such a great investment for global-minded investors. In buying Nike stock, you’re buying something that brings people of many different countries and beliefs together.
Nike may be a unifying investment… but that doesn’t mean it’s always a profitable one. Last Wednesday, Nike stock sank by more than 7% after a mixed earnings report alarmed investors.
The strange part about this sell-off is that Nike beat Wall Street earnings estimates by more than 30%. It’s the other parts of the earnings report that gave investors pause. Revenue came up short of expectations, and the company’s rivals have made big gains in key markets like North America.
Does Nike stock really deserve this massive drop, especially after a large earnings beat? To find out, we’re looking at the worldwide sneaker giant’s situation in detail.
Two Swishes vs. Three Stripes
It’s important to remember that Nike isn’t the only global sneaker and athletic gear empire. It faces fierce competition from its longtime rival Adidas (OTC: ADDYY).
Adidas’ gains in North America and other key markets are part of the reason why Nike sold off. The German sportswear giant saw North American sales increase by 24%. Nike had an underwhelming increase of just 3% in the region.
This is a big win for Adidas – and a big problem for Nike. Traditionally, the rivalry between the two sneaker superpowers has had a Cold War-esque theme. Adidas has been dominant in the markets of the former Soviet Union, while Nike has had the upper hand in the Americas. The competition was traditionally restricted to Western Europe and Asia.
But last week’s Nike earnings report made it clear that Adidas is gaining more of a foothold in the Western hemisphere. And the reason why Nike is losing market share in the West is even more concerning. It doesn’t seem to understand how Americans shop nowadays.
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Weak E-Commerce Means Weak Sales
In the earnings conference call on Wednesday, Nike CEO Mark Parker acknowledged that his company is behind the times in terms of its internet presence.
“To expand our leadership and ignite Nike’s next phase of growth, we’re delivering a relentless flow of innovation through performance and style, increasing speed throughout the business and creating more direct connections with consumers leveraging digital and membership,” he said.
That’s “execu-speak” for “we’ve been slacking with online sales, and we have to work on that.” Owners of Nike stock are hoping Parker follows through on his comments. Regular Investment U readers will probably remember Matthew Carr’s recent article on Black Friday and e-commerce.
Black Friday 2016 was the first year in which online shoppers outnumbered in-store shoppers. Holidays aside, the digital medium is rapidly catching up to traditional retail. And companies that don’t adapt risk going out of business.
The Bottom Line for Nike Stock
So does Nike stock deserve this big earnings …read more
Source:: Investment You
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