Here’s What You Need To Know About The State of Nike’s Business After Q4

Following quarter after quarter of blowing past Wall Street’s estimates with unprecedented growth, is athletic footwear market leader Nike Inc. finally slowing down?

Analysts have been largely divided in their opinions.

Nike’s Q4 earnings, reported after the market close on Tuesday, left market watchers in a quandary over a sales and gross-margin miss, ongoing deceleration in North America and earnings per share a penny higher than consensus.

It was a mixed bag, to say the least, and while Nike’s management remained upbeat — largely reiterating the brand’s fiscal 2017 guidance — president, chairman and CEO Mark Parker acknowledged that there is room for improvement.

In the near-term, we know there are certain areas where we have work to do, but nobody is more demanding of our business than we are internally,” Parker said during the company’s Q4 conference call. “And while outside of Nike, we face macroeconomic and geopolitical volatility, our ‘Complete Offense’ gives us our greatest competitive advantage. It’s how we drive profitable, sustainable growth in the near and long-term.”

The brand’s “Complete Offense” business strategy, Parker added, puts the consumer at the center of our business.

“This diversity is unique to Nike, and it’s our competitive strength,” Nike’s chief officer said.

Looking ahead, Nike CFO & EVP Andrew Campion said FX volatility — which has been further agitated by the Brexit vote — will remain a challenge.

Specifically, for fiscal year 2017, we expect reported revenue to grow at a high-single-digit rate, reflecting high-single-digit to low-double-digit growth on a currency-neutral basis,” Campion said, noting the firm’s 2017 outlook is largely in line with the high-level guidance shared last quarter. “Our rate of reported revenue growth will be more heavily impacted by FX headwinds in the first half of fiscal year 2017, primarily due to developing market currencies.”

While Nike’s share Tuesday fell victim to the “beat and raise” hopefuls, several analysts were impressed by the firm’s ability to top at least one estimate and produce an arguably solid quarter in an otherwise challenged retail environment.

In a period of U.S. retail turmoil, global economic fears and stiffening competition and FX volatility, we are encouraged Nike delivered a largely in-line quarter and outlook,” D.A. Davidson analyst Andrew Burns. “Investors will focus on North American deceleration, but benefits of broad geographic, product category and channel mix diversification are clearly seen in guidance calling for continued growth.”

Sluggish momentum in North America has been an ongoing concern for Nike in recent quarters, and the firm noted that it also experienced additional gross margin pressure in Q4 due to clearance of excess inventory in the region.

North America did not grow for the first time in six years, although this was affected by a tough compare as [last year’s Q4] benefited from a shift in orders due to port disruptions,” Susquehanna Financial Group LLLP analyst Christopher Svezia pointed out. “Importantly, growth is expected to return in Q1 and accelerate thereafter, supported by solid futures [up 6 percent]. On gross margin, while pressure will linger into 1Q, we were at least pleased to hear that inventory is now clean within the full priced channel allowing for expansion thereafter.”

For his part, Cowen and Co. analyst John Kernan blamed much of the North America slowdown on ramped-up competition from Adidas and Under Armour.

Increased competition from Adidas, which saw 31 percent constant currency North America sales growth in Q1/16 and continued strength from Under Armour’s apparel and Stephen Curry-led footwear business, are taking sales away from Nike,” Kernan wrote Tuesday.

Nike’s share price returned to positive on Wednesday, and as of 12:45 p.m. ET, had gained 2 percent, to $54.15.

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