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Analyzing Future Revenue Streams for Nike

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Futures orders update

Nike’s estimates of futures orders are an important yardstick in gauging future growth in sales. Nike (NKE) reported an 11% year-over-year (YoY) increase in its futures orders on a constant-currency basis. These refer to orders that will be delivered from March to July 2015. Nike reported an increase in both the average selling prices for products—up 6%—as well as an increase in unit sales, which are up 5%. Prominent categories experiencing growth include sportswear, basketball, and running.

Despite the demand-fueled growth, Nike estimated futures orders to increase by just 2% in reported revenue terms.

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Currency movements

As a follow-up to Part 5’s discussion of currency headwinds, the low growth in reported futures orders was primarily due to weakness in the euro, Japanese yen, British pound, Brazilian real, and Russian ruble. These factors would also affect revenue growth at Nike’s peer VF Corporation (VFC), which derives ~38% of its revenues from international markets, primarily in Europe.

On the other hand, global sportswear competitors Adidas (ADDYY) and Puma (PMMAF) (PUM.DE) may get a revenue boost from US operations, as they report their results in euros.

Nike and VFC are part of several ETFs. Together, they constitute ~0.5% of the portfolio holdings in the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV). NKE is also a Dow component and constitutes 3.5% of the portfolio holdings of the SPDR Dow Jones Industrial Average ETF (DIA).

China lone international bright spot

However, currency factors didn’t significantly affect futures orders growth in Greater China, which was up 22% in US dollar terms and 23% in constant currency terms. However, the currency impact was most pronounced in the Central and Eastern Europe, Japan, and emerging markets segments, which are expected to have negative growth in futures orders in US dollar terms.

FIFA World Cup impact

Year-over-year growth in orders declined the most for the emerging markets—by 17%, followed by Western Europe at -14%. The emerging markets segment was also the only segment reporting declines in constant currency terms at -6%. The growth in orders was affected by last year’s FIFA World Cup, which skewed the year-over-year comparisons for both emerging markets and Nike’s European segments. If the impact of the World Cup and Nike’s soccer gear sales were to be excluded, futures orders would have grown at a mid-teens rate.

Nike is also in the process of reconfiguring its surplus inventory levels to make them commensurate to demand in the key emerging market countries of Brazil and Mexico, which also affected orders.

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