When Nike (NKE) posted quarterly results that did not meet expectations, shares fell from $90 to $82.25 last week. What went wrong with the company’s footwear and apparel sales?
Nike posted revenue falling by 10.4% Y/Y to $11.6 billion. In the last three months, analysts cut expectations yet Nike still missed expectations. The firm no longer has the brand strength to command high prices. In addition, the company did not innovate its products to attract higher sales.
What Went Wrong?
In Q1, sales grew in North America and China. However, inventory remained elevated as retailers fell behind meeting sales targets. Nike will need more aggressive promotional work to sustain its gross margins. It also needs to re-evaluate its product portfolio. Its current product mix is not appealing to customers.
Digital sales are weak, falling by 20% in the quarter. Three classic franchises fell by 50% Y/Y, offset by the stronger wholesale channel. Although the firm wants to realize full prices without discounts, consumers are more careful with how they spend.
Monthly inflation might indicate a decline but prices over two years are higher. Nike could strengthen its direct-to-consumer model. It may achieve decent margins if it cuts operating costs, passing the savings to consumers.
In this retail space, investors may consider Adidas (ADDYY) and Deckers Outdoor (DECK).
