What's going on?
Shares of sportswear titan Nike fell by 3% on Wednesday, despite the company reporting higher quarterly sales and profit than investors expected.
What does this mean?
Last quarter, Nike’s sales grew all around the world and on the interwebz, too. In North America, they were 6% higher than a year ago, and they rose by 20% in China and 9% in Europe, the Middle East and Africa (excluding the effect of swings in various currencies). Ecommerce was the jewel in Nike’s crown, turning in 36% more sales than the same time last year.
Although Nike’s profit slam dunked beyond investors’ forecasts, they were left feeling deflated as Nike’s gross margin (i.e. its profit margin after direct costs like materials but not including things like marketing) was lower than hoped (tweet this).
Why should I care?
For markets: Investors were grossed out by Nike’s margin.
Nike, like a lot of big brands, has seen the pressure that retailers – department stores in particular – have been facing as competition from online competitors has ramped-up in recent years. Nike swooshed in, responding by selling more of its wares directly to consumers (rather than to retailers, which then sell on to customers). In theory, this should give Nike better control over its prices (it’s less likely to slash prices as some retailers are eager to do) and its customer experiences – which should translate into the power to charge higher prices and, all else being equal, a higher gross margin. Nike’s below-par quarter on this front could mean it hasn’t got the pricing power it would surely like, leading investors to sell its stock.
The bigger picture: No news on the ad front, for now.
Investors were curious about the impact of Nike’s divisive ad campaign – but will have to wait until next quarter to see the fruit or folly of its labor, according to the company (the ad aired after the last quarter). Controversy initially hit Nike’s share price but it soon recovered, after sales increased an estimated 31% over Labor Day weekend.