Poor Sales Cause the Nike (NYSE:NKE) Stock to Dip Sharply

nike earnings

The Wall Street can be cruel sometimes. Nike Inc (NYSE:NKE), which has basketball legends like Michael Jordan and many other celebrities as endorsers, has reported higher revenue of 5% for the quarter to $8.4 billion. Nike also posted earnings of 68 cents for each share, which was more than the estimated 53 cents. However, analysts were still not happy, because their overall expectation was $8.47 billion for the quarter.

The Nike stock, as a result, went down by 7% to reach $53.93. However, it has bounced back since then and was trading at $56.36 on Monday. But the market watchers are saying that Nike will probably plummet again soon because there are worries.

Sluggish Growth in North America Worrying Investors

Investors are worried because of the company’s sluggish sales growth in North America, which represents about 45% of their overall revenue. Incidentally, sales in North American have grown by a mere 3% in the quarter compared to the same period of last year. Nike’s gross margins have also declined by 140 basis points to 44.5% because of unfavorable foreign exchange rate changes, the impact of higher off-price sales, and higher product costs.

What could be a real cause for worry is that the future orders in North America, a measure of demand from important retailers have actually fallen by 9%. Nike is not providing much hope as well. They expect sales growth to slow down this quarter. Future order projections are also lower by 4%.

The business is facing tough competition from Adidas (ETR:ADS), which has made a strong resurgence recently. However, a key Nike rival, Under Armour is struggling at this time. The Under Armour (NYSE:UAA) stock was trading at $84.70 on April 1st last year. On Monday, it was trading at $19.66.

One reason for the weak North American business is because almost all retailers are losing out to online stores such as Amazon. With Walmart gearing up their online operations, that could hurt Nike and the other sports footwear and apparel makers too. Sears, Target, Kohl’s, Macy’s, and JC Penney are all facing a tough time.

Nike Doing Well in Asia and Emerging Markets

However, Nike (NYSE:NKE) is doing well in Asia and other emerging markets. Their sales in emerging markets have gone up by 8% the reported quarter. Their sales were even higher at 9% in China. In Japan, Nike’s sales went up by an impressive 15%.