Nike (NYSE:NKE) is all set to report its third quarter earnings this week. So far in the year, the company has managed to beat consensus revenue and earnings estimates consistently. That said, the stock price has taken a hit in the recent past on the back of a lackluster future order performance and a slowing apparel market. If Nike reports a good quarter, the stock could easily gap up. However, if the numbers disappoint, the stock can easily gap down. Nike is expected to report an EPS of $0.52 per share on $8.45 billion in revenue.
DTC To Drive Numbers in North America
Revenues in North America, which account for roughly half of the total revenues, have grown notably throughout the financial year thus far. Growth in the region was propelled primarily by DTC (Direct-To-Consumer). In comparison to the same period last year, the company has witnessed double-digit traffic increases, higher conversion rates, and higher dollars per transaction across brick and mortar stores and nike.com.
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Furthermore, Nike continues to invest heavily in reinventing the retail experience. This is evident in the number of concept stores opened so far. Last quarter, the sportswear giant opened a massive 55,000 square foot store in New York City’s prime Soho neighborhood. The store generated considerable buzz and has pushed strong traffic growth.
The store is a powerful look at the future of retailing. It allows consumers to get product trials with experts, elevated personalized experiences, and heightened member engagement, all the while seamlessly combining digital and physical retailing.
In the latest quarter, Nike has opened another such store on Fifth Ave, and it promises to be even bigger and better. Both these moves are bound to help Nike’s brand awareness and brick-and-mortar traffic (a metric that has been dwindling in the recent past). The opening of these stores is part of the company’s strategy to focus primarily on its DTC channels going forward.
Nike Continues to Face Pressure in Footwear
Nike has been losing market share in the footwear business. The company is facing increased competition from competitors like Under Armour and Adidas in the segment. Ever since signing Stephen Curry on, Under Armour has managed to grab a larger market share in the basketball footwear. The Curry series of basketball shoes have outsold Nike’s Jordan and LeBron series in the last few quarters, forcing the company to release cheaper models of its KD and LeBron shoes in an effort to regain some of the lost market share, despite the fact that this move hurts margins.
Adidas has primarily scored with fashion shoes promoted by celebrities such as Kanye West. In June, Adidas expanded its partnership with this artist, who moved to the company from Nike in 2013 due to creative differences. In the first quarter of FY 2017, Adidas managed to post a 31% increase in sales of footwear in North America, driven primarily by its Yeezy designs and retro shoes.
Going forward, we can continue to expect Nike to face tough conditions in the footwear market in the short term. In the long run, however, we can see Nike gaining back some of the lost market share by doing what Nike does best — innovation and marketing.
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