Nike on Solid Footing
Average selling price increases across most categories, improved basketball sales, and strong top-line momentum in China and other emerging markets suggest the wide-moat brand retains its dominance.
While tepid futures orders, gross margin compression, and higher inventory levels are in focus after
Admittedly, a 2% increase in futures orders was weaker than anticipated. While competition from Adidas/Under Armour and the trend shift toward lifestyle fashion versus performance products played a part, we continue to believe that Nike's expanded direct-to-consumer capabilities (constant-currency DTC revenue increased 25%--including 11% comps at Nike stores--which also explains the 9% increase in inventories) have diminished the correlation between futures orders and revenue. As such, we still find full-year guidance calling for high-single-digit top-line growth achievable. Management attributed gross margin pressures to higher product costs, foreign currency, and a higher mix of off-price goods due to retailer consolidation, but we expect the product cost and off-price mix issues to subside as the year progresses.
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