UPDATE: Nike has got too much product and not enough customer connection, analysts say
By Tonya Garcia, MarketWatch
Nike shares dip after an earnings beat that many analysts think was driven by the timing of expenses
Nike Inc. made too much product available and didn't have enough customer connection, Susquehanna Financial Group analysts wrote in their latest note, exacerbating an already volatile situation in the North American market.
Nike (NKE) reported earnings per share of 57 cents, beating the FactSet consensus of 48 cents, but down from 73 cents last year. The drop was driven by declines in gross margin, according to the company. Sales were $9.07 billion, nearly flat with $9.06 billion last year, and just below the $9.09 billion FactSet consensus.
After rising after-hours Tuesday (http://www.marketwatch.com/story/nike-shares-rise-as-company-beats-eps-expectations-2017-09-26), shares closed Wednesday down 1.9%.
A number of analysts make a point of attributing the earnings beat to the timing of selling, general and administrative (SG&A) expenses, and call out the softness in North America. Susquehanna analysts led by Sam Poser think the company needs to go back to keeping supply lower than demand in order to revive the U.S. business, particularly with regard to the basketball category and the company's Jordan brand.
"Striking the right balance between scarcity and scale will be challenging, but will be the critical ingredient in protecting the health of Nike's brands and stabilizing the North America business in the second half of 2018," analysts write in a Wednesday note.
Before the earnings announcement, data from The NPD Group showed (http://www.marketwatch.com/story/nike-earnings-even-jordan-cant-clear-hurdles-in-the-athletic-sector-2017-09-22) that Adidas AG (ADS.XE) had overtaken the Jordan brand to become the number two brand of U.S. sport footwear in August. And Adidas' basketball sales grew more than 40% while Nike's declined, though the category was down 20% for the month.