Evaluating Nike’s top-line performance

Nike is the largest sportswear manufacturer in the world and has the largest market share in most of the markets that it operates in. The company clocked total sales of $32.4 billion in fiscal 2016, up 5.8% YoY (year-over-year).

In the first quarter of 2017, sales were up 7.7% YoY to $9.1 billion, the company’s highest-ever quarterly sales figure. Nike topped the Wall Street estimates for the quarter after three consecutive quarters of revenue misses.

Nike’s Top-Line Growth Likely to Remain Sluggish in 2Q17

The company has been facing currency headwinds and increasing competition from Under Armour (UAA), Lululemon Athletica (LULU), and Adidas (ADDYY), which have impacted its top line over the last few quarters.

What drove sales in 1Q17?

Nike continued to deliver a solid performance with a 10% YoY increase in 1Q17, primarily driven by a double-digit growth in the company’s overseas markets.

Direct-to-customer (or DTC) revenues were particularly impressive with a 22% increase. The momentum in DTC revenues was led by a 49% rise in online sales and an 8% growth in sales comps.

Global future orders, however, failed to impress. While the future orders were up 7% YoY (excluding currency effect) in 1Q17, analysts were expecting an increase of 8%. North America future orders were particularly sluggish and rose 1% as compared to analysts’ estimates of a 5% increase.

What to expect now?

Nike’s management has forecasted a high-single digit revenue growth for fiscal 2017. On a currency basis, the growth might range between high single digits to low double digits.

The second quarter is likely to be a slow growth quarter with sales increasing at a mid-single-digit rate. Wall Street is also in line with the management and is predicting a 5.3% YoY growth for 2Q17. Growth momentum is likely to return in the third quarter as sales are likely to increase 8% YoY in 3Q, followed by an 8.5% YoY increase in 4Q.

ETF investors seeking to add exposure to NKE can consider the SPDR Dow Jones Industrial Average ETF (DIA), which invests 1.8% of its portfolio in NKE.

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