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Understanding Nike’s Performance in 2017

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Jan. 22 2018, Updated 5:50 p.m. ET

Here’s why Nike had a challenging 2017

Nike (NKE), the world’s largest apparel company and America’s leading Sportswear brand, held its long-standing number-one position throughout 2017. However, the sportswear giant lost some of its shine due to changing consumer preferences, which moved away from performance to retro styles.

“Nike [is] still struggling in performance and they have the most to give up,” said NPD Group’s Matt Powell. “The brand epitomizes the performance basketball business, and that businesses remained quite challenged. And performance running business remains quiet…those are the two for Nike.”

Nike’s North America sales contracted 4.5% YoY (year-over-year) during the second quarter of 2018, although the company’s total sales improved 4.6% during the quarter. Its gross margin contracted by 120 basis points to 43% of sales, marking the seventh consecutive quarter of gross margin decline.

Management expects the ongoing headwinds to continue throughout fiscal 2018, and it has projected a 50–100 basis point decline during the year. Nike reported its second quarter results for the three months ending in November 2017 on December 21, 2017.

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Nike still is king

Despite the ongoing weakness, Nike’s styles dominated the charts in 2017. Air Huarache, Tanjun, Jordan XI Low, and Converse All Star OX Low were some of its successful sneakers. The Nike brand continues to dominate the U.S. market with a 37% market share.

Also, though Nike saw gross margin pressures, the company posted its twenty-second consecutive quarterly earnings beat in 2Q18.

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.

Read the next part of this series to learn how Wall Street viewed Nike’s performance and what expectations it has for the apparel giant.

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