When Nike Inc. weighs in with its fiscal 2017 earnings this afternoon, it won’t be the past that investors focus on, but an accelerating future.
The North American market is expected to be a source of continued struggle for the company looking to evolve its place in a market where even the biggest have to be bold.
Nike does bold well and brought the hard-charging ethos of the competitive athlete to corporate America, building a market capitalization of over $87 billion.
But the game is changing and Nike might well have to continue to make bold, and perhaps uncomfortable, moves to keep up. (Just ask Under Armour Inc. chief Kevin Plank who brought in a relief player, Patrik Frisk, to be president and chief operating officer).
Analysts and traders will be listening closely for any hints about Nike’s relationship with Amazon. Goldman Sachs analyst Lindsay Drucker Mann said last week the two could soon be in a “direct relationship” with the athletic brand selling at least some goods to the web giant.
Nike doesn’t currently sell to Amazon’s main platform (it does do business with its Zappos unit) but the Nike brand is readily available from third-party Amazon sellers. That has led to an inconsistent presentation on the web’s top e-commerce platform.
“Controlling presentation on Amazon.com is an operational imperative for Nike going forward,” Mann said, noting that Under Armour works directly with Amazon, leading to a better experience for the consumer.
Analysts are looking for Nike to boost its fourth-quarter earnings per share to 50 cents, from 49 cents a year ago, on a 4.9 percent gain in sales, to $8.64 billion. Like other brands, Nike is coping with troubles in its wholesale business with a number of retail bankruptcies, most notably The Sports Authority, and a ton of store closures.
Shares of Nike, which were up 0.8 percent to $53.35 Wednesday, have lagged the market over the past three months, falling 5.6 percent during that time period while the S&P 500 gained 3.4 percent.
Corinna Freedman, an analyst at Berenberg Capital Markets, said there’s opportunity in Nike’s stock: “Everybody’s overly concerned with North American distribution and how it impacts their wholesale business, so I think there’s a doomsday scenario priced into expectations for next year. We think the North American business feels like it’s stabilizing, it’s a little bit difficult to track.”
Freedman described the firm’s wholesale channel as a “melting ice cube distribution,” but said Nike was a “phenomenal brand” with “very strong” growth in emerging markets and new product development in the works.
“I think that Amazon is a product search engine and if you’re not listed above the fold and you’re not a brand that pays to play so to speak, I think consumers who want the free shipping” will stay on Amazon to get it, she said. “It’s almost like paid search. It makes sense for a brand to want to be front and center.”
Others see more danger in dealing with Amazon, which is looking to build its own activewear brand and has the potential to compete with anyone from any number of angles.
Nike is a big player, but it’s still in the minor leagues compared with the giants like Amazon that are now roaming the consumer landscape.
And increasingly the market is being defined by mammoth companies, their competitive struggles and their growing appetites. Wal-Mart Stores Inc. is on its Jet.com-fueled acquisition streak, Amazon inked a deal to buy Whole Foods, Google is in the shopping business (as its record 2.4 billion euro fine in Europe attests) and JD.com is venturing out with its $397 million investment in Farfetch. And Alibaba, which has been rumored to be interested in a stake in Yoox Net-a-porter Group, spent $1 billion to boost its stake in Southeast Asian e-commerce platform Lazada to 83 percent from 51 percent.
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