Nike slowdown, rivals gaining

Futures orders -- a key indicator of demand for the brand's sneakers and apparel -- rose just 1 per cent in North America as of August 31. Photo / AP

Nike's closely watched futures orders are barely increasing in North America, renewing concerns that competitors are hamstringing the company's once-torrid growth.

The orders -- a key indicator of demand for the brand's sneakers and apparel -- rose just 1 per cent in North America as of August 31, according to a statement from the Beaverton, Oregon-based company. Analysts had projected a 5 per cent gain. The figure tracks products that will be delivered between September and January.

"The slowdown in North America is worse than expected," said Chen Grazutis, an analyst for Bloomberg Intelligence.

Increased competition from Adidas AG and Under Armour Inc. has taken a toll on the world's largest athletic brand this year, with slowing sales growth in its home country. That's hammered the stock, which is on pace for its first annual decline in eight years. Futures orders also came in just short of estimates in China.

Earnings topped analysts' estimates last quarter, but they were helped by a tax benefit. A resolution of a foreign tax credit matter with the Internal Revenue Service reduced Nike's effective tax rate to 2.5 per cent, compared with more than 18 per cent a year earlier.

Nike reported profit of 73 cents a share, compared with an average analyst projection of 56 cents. Still, there were troubling signs beneath the surface, Grazutis said. Nike's gross margin missed estimates by 100 basis points, suggesting that the company relied more heavily on discounts to fuel growth.

The company generated less earnings before interest and taxes during the quarter, with that measure of profitability falling 11 per cent to $1.28 billion. Net income rose 5.9 per cent thanks to the lower tax bill, while revenue gained 8 per cent to $9.1b.

The company also reiterated its sales forecast for the year ending this May, calling for growth at a high-single-digit percentage.

Nike said that orders aren't a proxy for revenue, and it remains confident that North America would continue to be a strong region -- with annual sales growing at a high-single-digit percentage through 2020. In an effort to downplay the importance of orders, the company will change how they are reported by moving them from the earnings press release to the investor call that follows.

"We're excited about the pipeline of great products that we have coming," Trevor Edwards, president of the Nike brand, said on a conference call. "The brand is as strong as ever."

Nike had been thriving in the years since the recession, with the stock averaging annual gains of 26 per cent since 2008. But 2016 has been a struggle. Under Armour has attacked its lucrative basketball-shoe business with its Stephen Curry line. Meanwhile, Adidas has taken some of its casual business with retro styles like Superstar. That's raised doubts about Nike's ability to hit its long-term goal of boosting annual revenue from $32b to $50b by 2020.

"There is more competition from brands that didn't have the cachet they do now," Grazutis said.

Finish Line Inc. added to doubts about Nike on Friday, when the U.S.-based chain shoe chain said sales of Nike's premium basketball shoes fell last quarter. Chief Executive Officer Sam Sato also praised Nike's competition, calling the performance of Under Armour's latest Curry shoes "tremendous" and said that Adidas remained "on fire."