Nike’s share price tumbles in after-hours trading despite strong results
As discussed in the previous part of this series, Nike (NKE) reported its first quarter results yesterday. The company trounced earnings and revenue expectations. The markets, however, did not reward the stock for its strong earnings and revenue beat. The company’s share price tumbled 2.6% in after-hours trading. The stock price had moved even further south by 3.9% by 1:15 EST today. The falling share price is the market’s reaction to Nike’s sluggish future orders growth and higher inventory levels in 1Q17.
What are future orders and why are they so important to Nike?
Futures orders are an important retail metric. They provide a view of the orders that a company receives in advance to provide the products within a stipulated timeframe.
In Nike’s case, these future orders are the advance orders that Nike receives from its retailers for the delivery of its Nike Brand apparel and footwear. These orders are a measure of demand for Nike’s products and provide a near-term view on Nike’s sales. However, it’s just a partial view.
Nike’s global future orders rose 7% YoY (excluding currency effect) in 1Q17. In comparison, analysts were forecasting an increase of 8%. North America future orders, in particular, were sluggish and fell quite short of expectations. They rose 1% compared to analysts’ estimates of 5%.
ETF investors seeking to add exposure to NKE can consider the SPDR Consumer Discretionary Select Sector ETF (XLY), which invests 3.1% of its portfolio in NKE. XLY also invests ~1% and 0.3% of its portfolio in VF (VFC) and Under Armour (UA), respectively.
What was behind the futures orders decline?
Nike has been facing competition like never before. Competitors Under Armour (UA) and Adidas (ADDYY) are snatching away Nike’s market share. UA’s deal with Stephen Curry has proved to be expensive for Nike as UA has been able to expand its basketball market share, which is Nike’s key market. On the other hand, Adidas’s Ultra Boost (ADDYY), which the company launched in early 2015, has impacted Nike’s running business.
Though Nike’s orders were weak this quarter, the company, maintained its record of a consecutive earnings beat. Read the next section to understand the reasons behind the company’s impressive performance this quarter.