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Is Nike's Performance Against Competitors Getting Slam-Dunked?

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September 27, 2016
Nike's financial performance and stock market earnings in Q2.

Nike (NKE) appears to have had a tough quarter with analysts downgrading the stock amid reports that competitors in the athletic sports-gear market like Adidas (ADDYY) have been gaining ground on NKE in the casual category. Is that true?

The juggernaut is on schedule to report Q1 earnings after the bell Tuesday. On Monday, JP Morgan analyst Matthew Boss pulled NKE off his preferred-stocks list and replaced it with Foot Locker (FL), which he says appears to be more in tune with consumer preferences—and how quickly they’re changing—than NKE. “Eighty percent of sneakers today are being bought with no intention of ever getting to a field or court,” he said on CNBC.

“The second side is this lifestyle shift that most innovation is more of a given today, and now the fashion and the color as well as the price point” take greater precedence than innovation. Under Armour (UA), he noted, ousted NKE and its ubiquitous “swoosh” logo temporarily earlier this year in basketball-shoe sales when it rolled out an affordable price point on NBA MVP Stephen Curry shoes.

He sees more competition ahead, but also said, “on a multiyear basis, NKE will figure this out.” Until then, investors will be listening for what future orders look like and whether its Nike+ app, a tracking device and workout aide, is helping boost direct-to-consumer sales.

NKE has outpaced analysts’ profit expectations in the last 16 straight quarters and its revenues have continued to improve over that time as well, though its earnings have been choppy.

Analysts reporting to Thomson Reuters are pegging a per-share profit of $0.56, some $0.11 a share lower than the year-ago results. Revenue is projected to rise to $8.88 billion from $8.41 billion a year ago.

Short-term options traders have priced in a potential 4.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform from TD Ameritrade.

Ahead of earnings, traders were buying the monthly 55-strike calls and the at-the-money puts. Volume this week has been four times the normal on the call side and five times that on the put side. The implied volatility is relatively high at the 53rd percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

NKE chart

FIGURE 1: NIKE'S FREE SHOT.

Investors will be listening for any clues on what might power NKE’s stock, which is down nearly 16% since the beginning of the year and nearly 6% on a year-over-year basis. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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