Nike may see mixed performance overseas

Nike (NKE) classifies its results into segments, based on geography. The company is likely to see very different results from the various segments in 1Q16. In fiscal 2015, Nike derived ~55%, or ~$16.9 billion, of its sales from outside North America. Most of these sales came from Western Europe (18.7% of total sales), Emerging Markets (12.7% of total sales), and Greater China (10% of total sales).

Overseas Markets and Nike: Obstacles on the Leading Footwear Company’s Revenue Racetrack?

Futures orders

In fiscal 2015, adverse currency movements had reduced top-line growth by four percentage points. Between June and November 2015, Nike reported a 2% growth in futures orders. Excluding currency movements, growth in futures orders was estimated at 13%. While most markets are expected to grow at a double-digit pace during the period in constant-currency terms, reported growth in futures orders was positive for only two markets—Greater China (up 20%) and Japan (up 1%).

Deteriorating economic fundamentals

The higher US dollar and the challenging macro-environment in many geographies is also likely to affect reported sales and earnings. In particular, the Central & Eastern Europe, Western Europe, Emerging Markets, and Japan segments are likely to be most affected by the higher US dollar. Japan, Brazil, and Russia will likely pose the most risk to Nike’s performance, as a combination of macro-factors and adverse forex movements take their toll.

However, 1Q16 sales comparisons in Japan may benefit due to last year’s consumption tax increase, which rose in April 2015. This had put a dampener on sales for several succeeding quarters.

Peer group performance

Nike’s peers VF Corporation (VFC) and Columbia Sportswear (COLM) also reported a decline in its top-line due to currency factors in their last quarters. The sales declines for VF and Columbia came in at eleven percentage points and four percentage points, respectively, in 2Q15, which for these companies ended on June 30, 2015. VF derives most of its international sales from Western Europe, and so the weak euro affected the company’s performance.

However, both VF and Columbia did raise their full-year outlook. Columbia has remained bullish in its prospects for North America, while VF expects a greater upside in earnings per share on improved product margins.

Nike and VF Corporation together constitute 0.6% of the portfolio holdings in the iShares Core S&P 500 ETF (IVV) and 1.1% of the holdings in the iShares S&P 500 Growth ETF (IVW).

In the next part of this series, we’ll look at Greater China’s impact on Nike’s sales in 1Q16.

Latest articles

On June 25, the soft economic data isn't an isolated case. We have been getting a flurry of dismal data points. The US economy added only 75,000 non-farm jobs in May.

French retail giant Carrefour has agreed to sell an 80% stake in its China operations for ~$705 million to Suning.com, an Alibaba (BABA) backed company. While China represents a massive opportunity with its almost 1.4 billion population, it has not been an easy market for foreign companies, at least when it comes to retail and e-commerce.

On June 25, US Secretary of Agriculture Sonny Perdue told CNN in an interview that the US-China trade war has impacted US farmers. He said that farmers “are one of the casualties” of the trade war.

25 Jun

Hang Seng and Nikkei 225 Lose amid Trade Worries

WRITTEN BY Mayur Sontakke, CFA, FRM

After rising marginally yesterday, Hong Kong’s Hang Seng Index fell today. The index lost 1.15% to end at 28,185.98. Only seven stocks in the index rose, while 39 declined. Four remained unchanged. Tencent Holdings (TCEHY) was one of the worst performers with a 1.8% fall.

Square (SQ) was absent from the list of the inaugural members of the Libra Association, the entity that will ensure that Facebook’s (FB) Libra cryptocurrency works as intended. Nearly 30 companies have joined the Libra Association.

Kroger (KR) stock fell 2.2% on June 20—the day the company announced its results for the first quarter, which ended on May 25. The negative sentiment for the stock continued.

172.31.71.127