By Steven Alvarez,
Money and Investing Writer
Even though Nike (NYSE:NKE) reported an increase in earnings over the most recent quarter, analysts have categorized these earnings as “low quality”. Another worry that Wall Street holds regarding Nike is the discrepancy between the single digit percentage revenue growth that Nike predicted over the next fiscal year and the 10 percent gain that Wall Street anticipated. These realities has brought concerning questions to this top athletic brand and its future earning potential.
In the most recent quarter, Nike reported a 5 percent sales growth and a 24 percent earnings per share growth. The large gap between sales growth earnings per share growth is the concern for many.
The gap can be attributed to the culmination of Nike buying back some of their shares and tax/ cost cutting. Neither of these solutions is reliable for long term growth thus Nike faces the challenge of reigniting sales growth in other ways. Other big sportswear companies such as Adidas and Under Armour have contributed to Nike’s disappointing earnings.
However, with the European Football championship coming up, the Olympics in Rio, Brazil set for this summer, as well as big name sponsors such as LeBron James and Kevin Durant dominating the NBA playoffs, Nike hopes to trend upwards in the near future.
One of the ways Nike hopes to increase earnings is to assert more focus on international markets such as China, Western Europe, and other growth region. More than half of the company’s sales comes from international markets so this is certainly in their best interest.
Another way that Nike plans to grow their earning potential is through their “Edit-to-amplify” program. Nike has recently struggled to sell all of their inventory leading to too much inventory and too much discounting. The “Edit-to-amplify” program attacks this problem by cutting 25 percent of its products and amplifying the 75 percent of its products that account for 99 percent of their sales.
This solution focuses on their more popular products and takes the items that do not sell off of the shelves. Nike hopes that this will boost sales as they continue to raise average prices.
In order for Nike to transition from low quality earnings to high quality earnings, they must boost sales as they have done countless times in the past: by innovation. By producing top-notch gear, Nike can continue to expand internationally, raise average prices, and advance manufacturing capabilities all to grow their total market share.
“To expand our leadership and ignite NIKE’s next phase of growth, we’re delivering a relentless flow of innovation through performance and style, increasing speed throughout the business and creating more direct connections with consumers leveraging digital and membership,” said Nike CEO Mark Parker.
Of recent, Nike has launched a plus-size line and an athletic hijab for Muslim women.
Although these recent innovations are directed at a small audience, it goes to show the innovative potential that Nike maintains and wishes to capitalize on in the near future.
A version of this article appeared in the Tuesday, April 25th, 2017 print edition.
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