Nike Inc. (NASDAQ: NKE | NKE Price Prediction) posted dismal quarterly earnings, due largely to its results in China. However, that is not at the heart of the problem. Adidas and Puma are desperately trying to get market share as each has its own deep problems. At the next tier down are Lululemon, Under Armour, ASICS, New Balance, Skechers, and Hoka, also elbowing for market share. Nike’s valuation is based as much on the crowded market as any single quarterly financials.
Investors have the right to be disappointed. Nike’s stock is down 14% this year, while the S&P 500 is up 15%.
On the front page of the investor relations section of the shoemaker’s website is the slogan “Nike, Inc. Is A Growth Company.” Management should take that page down. Born on the back of legendary runner Steve Prefontaine, Nike’s revenue for the most recent quarter was up 1% year over year to $12.4 billion. Per-share earnings fell 31% to $0.54. Recently appointed CEO Elliott Hill said, “NIKE is in the middle innings of our comeback.” He may be the only person in the world who feels that way.
Nike’s Greater China revenue dropped 17% to $1.42 billion. The New York Times reported, “Nike warned that the weakness in China would persist and remain a drag on sales.”
What is often left out of the Nike China conversation is the strength of local brands, including Li-Ning, ANTA, Xtep, and 361 Degrees. The problem is similar to Apple’s, as it is up against local smartphone giants Huawei, Vivo, Xiaomi, and Oppo. Each has a double-digit market share.
Some investors blame Nike for a lack of product development. Competition is a better way to measure its challenges.
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