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Investment

Nike's earnings spell trouble for Under Armour in apparel

Nike‘s latest earnings report brought a mixed bag of results — mostly positive — along with another highly anticipated announcement.

The retailer confirmed plans to begin selling a limited assortment of footwear, apparel and accessories on Amazon.com, prompting a rally from Wall Street. Without divulging much detail, Nike said it’s still in the early stages of testing this strategy and continues to evaluate those sales made on Amazon.

Nike’s stock, meanwhile, led the S&P on Friday, trading up around 9 percent and on pace to mark its best performance in two years.

Analysts are also picking up on how Nike’s apparel business is performing, noticing that clothing sales slowed in the fourth quarter. This, as many retailers are struggling to find a so-called sweet spot in the apparel industry.

It’s a tough space to be in, as trends come and go so quickly, customers’ shopping habits are evolving, and many companies are striving to create the best omnichannel approach to capture sales.

Fortunately for Nike, though, apparel doesn’t make up as much of the retailer’s revenue, especially when compared with rival Under Armour, Oppenheimer analyst Anna Andreeva told CNBC’s “Squawk on the Street.

Under Armour essentially bills itself as an apparel company, Andreeva said. Nike is talking about “being back in basketball,” really stepping up its game in footwear in this segment with the Jordan brand, among others, she added.

Nike is also starting to cut back on less profitable wholesale partnerships, something that will help the brand over the long term, Andreeva said, but Under Armour is still holding on to things that are keeping Wall Street “concerned.”

Footwear, for Nike, is a much more “resilient category,” Berenberg Capital Markets analyst Corinna Freedman told CNBC’s “Squawk on the Street.” “Apparel has a lot of competition … there is a lot of deflation there.”

Freedman prefers Nike in the athletic space because it boasts a lower percentage of an apparel business compared with peers. “Under Armour is a tough one,” she added.

As Under Armour has stumbled with apparel in the past, another slowdown in this category could make it tough for them to bounce back, Freedman said.

Under Armour is expected to report second-quarter earnings later this month.

For the first quarter, Under Armour’s apparel revenue climbed 7 percent from gains in training, golf and team sports, while its footwear sales grew a mere 2 percent.

One year earlier, Under Armour’s shoe sales were up 64 percent due to “significant strength in basketball sales,” the company said. It remains to be seen how Under Armour will take on Nike in this key sports segment.

Analysts who cover the stock have said they’re looking for Nike specifically to control inventory, reduce markdowns and lower costs.

Source: FactSet

Source: Investment Cnbc
Nike's earnings spell trouble for Under Armour in apparel

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