Nike Q2 2018: Earnings Preview

by Trefis Team
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Nike (NYSE:NKE) is all set to report its earnings for Q2 2018 on 21 December, right in the midst of the busy holiday season. The company faced a pretty tough time in 2017, and a similar lull seems to be continuing into this year as well. The wholesale revenues slump in the U.S., that has persisted for some quarters now, continues to weigh on the company’s financials. Despite this, the company’s stock price has surged by almost 20% in the last three months as investors show optimism towards Nike’s growth strategies and worry less about the market gains made by competitors in 2017.

Shift From Wholesale To DTC In North America

Like many of its competitors, the weakening wholesale environment in North America has taken a toll on the company’s top line in the region. Weak sales numbers in the U.S and Canada continue to weigh on overall revenues. In this respect, the company expects low single digit growth in fiscal Q2. Specifically, analysts expect Nike to post a revenue figure of about $8.39 billion, representing a poor year over year growth of only about 2.6%.

To counter this, in the recent past, the company’s management has shifted its focus in North America from wholesale to the direct-to-consumer channel as pretty much every company in the world realizes the potential of having a wide online presence. In essence, digital is the future for Nike.

The company believes digital sales will account for almost 30%, up from the current figure of 15%, over the next five years. In this respect, the company has decided to up its investment to better its  digital infrastructure. We expect this change in strategy to greatly benefit the company in the near future. The upcoming earnings call could shed more light on this.

Few Bright Spots For Footwear

The footwear segment has remained quite weak for the company through most of 2017. In Q1 2018, footwear sales only grew at a meager 1% year over year. This trend is expected to continue for some time now if Foot Locker’s – Nike’s biggest customer – earnings call is to be considered. While there is a general slump in the footwear market, the call shed some light on a few wins for Nike to be happy about.

According to the shoe retailer, Nike’s running shoes have performed relatively better than most other shoes this quarter. Foot Locker reported that Nike’s VaporMax and Air Max 97 were some of the strongest sellers in footwear. This makes sense considering in fiscal Q1, Nike reported that its Air VaporMax shoe holds the top position in terms of market share at the $150-and-up price point.

Furthermore, the men’s basketball category, which has recently seen sales drop substantially, is seeing an improving trend. In specific, Nike’s Jordan Retro seems to be seeing better-than-expected sales in Foot Locker’s most recent quarter.

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