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Nike Drops as North American Sales Rebound Misses Estimates

Eben Novy-Williams
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Nike Drops as North American Sales Rebound Misses Estimates

(Bloomberg) -- This might sound familiar to Nike Inc. investors.

The world’s largest sportswear company delivered strong third-quarter earnings Thursday, but missed on one important metric: North American sales. The home market dogged Nike for much of 2017 and early 2018, and the latest sales miss sent the shares down as much as 4.3 percent Friday in New York. That’s the stock’s largest drop since Christmas Eve.

Third-quarter sales in Nike’s home market, by far its biggest, totaled $3.81 billion in the period ended Feb. 28, short of the $3.85 billion average of estimates. Nike outpaced expectations in each of its other regions -- Europe, Middle East and Africa, greater China, as well as Asia Pacific and Latin America.

This is old terrain for Nike investors -- albeit on a less-frightening scale. The Beaverton, Oregon-based company suffered three straight quarters of lower North American sales in 2017 and 2018, with rival Adidas AG gaining ground. That narrative reversed in recent months, with Nike recovering in North America and posting significant growth in Adidas’s home region. And the company still managed to scratch out a 7 percent sales gain at home.

“Nike has been trying to push much higher price points for some of its running merchandise,” Bloomberg Intelligence analyst Chen Grazutis said in an email. “And it will be interesting to see if there is some pushback there from consumers.”

Last year, Nike said its domestic slump stemmed mostly from struggles at its U.S. retail partners, which were closing stores amid a slow period for the entire industry. That’s a harder argument to make right now, a period of growing momentum for both apparel and shoe sellers. Earlier this month, Foot Locker, Nike’s biggest retailer, reported same-store sales growth of 9.7 percent.

Other metrics turned out more favorably for Nike. Profit, though unchanged from a year earlier, came in at 68 cents a share, beating projections of 65 cents. And gross margin expanded to 45.1 percent, also topping expectations.

The company is expected to be the biggest beneficiary among competitors as the NCAA “March Madness” basketball tournament gets underway, Grazutis said Thursday, before the results were published.

“Most brands use ‘March Madness’ to reach a national audience, but it’s exceptionally important to Nike, with its disproportionate share of basketball-related business,” he said.

For the current fourth quarter, Nike projects low single-digit percentage growth in sales, citing currency fluctuations. That would put revenue below the $10.4 billion average of analysts’ estimates.

(Updates with shares in second paragraph.)

To contact the reporter on this story: Eben Novy-Williams in New York at enovywilliam@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

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