24/7 Insights
- Nike Inc. (NYSE: NKE) used to be a growth company but isn’t anymore.
- Down 16% this year, its stock has not rallied at all.
Nike Inc. (NYSE: NKE) has a lot going for it as the world’s largest athletic apparel company. It has Air Jordans, clothes, and shoes for virtually every sport, each for men, women, and children. It also has competitors like Adidas, Puma, and other athletic shoe and apparel brands. There is worry that these keep chipping away at the leader.
The stock is down 16% this year, while the S&P 500 is 11% higher.
The Trouble With Nike
Nike has turned to layoffs. Early in the year, it cut 1,600 people. That is not a lot of people for a company with over 80,000. However, Wall Street and the media noticed. It was a sign of the company’s struggle.
The Wall Street Journal reported that Nike wanted to sell more products directly to consumers and cut out retailers. On paper, that should drive larger margins. Investors do not agree. The stock has not rallied at all.
A look at Amazon shows Nike is in a crowded online market. Its e-commerce competition includes more than Adidas and Puma. There are dozens of niche brands, including Under Armour, New Balance, Reebok, and Gap. None of the product lines is as broad as Nike’s. However, New Balance has a strong line of athletic shoes, and Under Armour has a range of athletic apparel. All these companies want a part of Nike’s market share, even if that share is modest.
Nike’s revenue depends on its namesake brand. In the most recent quarter, Nike brand sales were $11.9 billion of the company’s $12.4 billion total, barely up from the same quarter the year before. Net income slipped from $1.24 billion to $1.17 billion. Revenue fell in the European Union, Middle East, and Africa, an Adidas stronghold. Nike’s revenue in that region dropped 3% to $3.14 billion. The Converse brand was a disaster, down 19% to $495 million.
CEO John Donahoe did not have much to say: “We’re encouraged by the progress we’ve seen, as we build a multiyear cycle of new innovation, sharpen our brand storytelling and work with our wholesale partners to elevate and grow the marketplace.” Whatever that means.
Nike’s problems boil down to one thing. It used to be a growth company, but it isn’t anymore.
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