Nike's Best Defense Is a Good Offense

By Miriam Gottfried 

Nike wants to maintain its status as most valuable player. Investors shouldn't underestimate the importance of its size in that feat.

The sportswear company's fiscal third-quarter sales fell short of analysts' expectations when it reported late Tuesday. Nike said futures orders, which many investors consider an indicator of upcoming sales results, were down 4% year over year or 1% after adjusting for currency fluctuations. The company said it is limiting supply amid surprisingly strong promotional activity from competitors and that it is expecting gross margins to contract in the fourth quarter. The cautionary note sent shares down 6% Wednesday.

But Nike hasn't stopped playing offense and its investment should allow it to win back market share.

Its sales growth has suffered amid a comeback by competitor Adidas in North America, but Nike has the advantage of scale. That allows it to outspend competitors on marketing and research and development -- two of the biggest factors driving sales. Given that, to believe Nike can't retake the share lost to Adidas is to believe its long-term competitive advantage has disappeared.

The company has a basketball-inspired name for its three-pronged growth strategy: "triple double." It is focusing on being more innovative, bringing products to market more quickly and increasing direct contact with consumers through apps, membership programs and personalization. Nike is launching new running shoes this weekend and has more products in the pipeline.

Investors may continue to point to negative futures as a sign that things have changed, but futures have become less reliable. Actual results have been closer to management's guidance than to reported futures in all but two quarters since the beginning of fiscal 2015, according to Instinet.

Nike rarely misses a rebound.

Write to Miriam Gottfried at [e-mail]

(END) Dow Jones Newswires

March 22, 2017 14:33 ET (18:33 GMT)

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