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Nike Drops The Ball…Again

Nike 2016 Earnings

Image source: dnaveh / Shutterstock.com

What's going on?

Nike reported disappointing sales for the second straight quarter on Tuesday, and its stock sold off more than 5% immediately after the news.

What does this mean?

Nike and its rival Under Armour used to be darlings of the stock market as their sales growth significantly outpaced most other apparel makers. Consequently, investors pushed up the value of their stocks with the expectation that sales would continue to grow at a stellar pace. Well, it turns out that was too optimistic. Both companies are struggling to live up to expectations – and their stock prices are getting hit as a result (Nike’s stock is now down almost 20% this year).

Why should I care?

The bigger picture: Brexit could hurt Nike more than most companies. Nike sells a lot of its stuff into the British and European markets. As economic growth there slows, it’s likely that consumers will cut back on their spending – and expensive kicks are a good place to start. The hope will be that China and other “emerging markets” will be able to pick up the slack created by Europe – but that’s far from certain.

For the markets: This could threaten other brands. We all know by now that it’s tough being a retailer (e.g. a Macy’s or H&M). But some brands have continued to do well: the theory is that people will still seek out the popular brands and spend their money on them. That is to say, retail brands (like Lululemon) enjoy greater customer loyalty than, say, department stores who don’t have their own product brands. But Nike shows that even brand power has its limits – which could cause investors to re-evaluate other companies that heavily rely on the value of their brand to drive sales.

Originally posted as part of the Finimize daily email.

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