Here is a noteworthy tidbit ahead of Nike's (NKE) earnings report Tuesday afternoon.
Under Armour (UA), which is proving to be a huge thorn in Nike's side (a thorn it still doesn't respect), will be opening its first product innovation center tomorrow at 10 a.m. I will be there at the company's headquarters in Maryland covering the event, which is likely to showcase some interesting new product innovations as well as a speech from Under Armour's founder and CEO Kevin Plank (and maybe some sports star appearances).
This is notable in that Under Armour, a Growth Seeker holding, is holding the event -- which is likely to be attended by a good number of reporters who also cover Nike -- a mere hours before Nike reports earnings. Believe me, the timing is no coincidence, and reflective of one continuing theme when studying both companies: Under Armor continues to dominate the narrative on Wall Street when it comes to sportswear companies and, increasingly, from a clothing perspective.
Under Armour is strategically out-thinking Nike in many ways, even when it comes down to the timing of marketing events.
Why Nike has lost the attention of investors (stock is down 16% this year) was likely on display in its most recent quarter. Sales growth in basketball sneakers likely continued to slow, inventory may be elevated (due to sales misses at department stores in the first quarter) and margins were probably under pressure due to investments ahead of the Olympics.
All in all, the quarter is set up to be another disappointment in the sense Nike is no longer growing as it once did, and as a result investors may need to look at the company through a new lens.
For Nike to regain some love on Wall Street, it will have to display three things on Tuesday when it reports and holds its earnings call.
Excess inventory cleaned up: The quarter had to have represented the "kitchen sink" on Nike's excess inventory issue, mostly in North America. That's why I think results will be on the soft side -- it's likely the company tried to clear as much unsold inventory as possible, taking a hit to margins, ahead of new Olympics-related product flows. If Nike is still talking excess inventories on its earnings call, then it will be hard to buy the stock.
Sneaker comments: While Nike's basketball sneaker sales have slowed due to a lack of innovation and the popularity of Stephen Curry's shoe from Under Armour, it's also seeing renewed threats in other categories from Reebok, Adidas and even Vans. Under Armour, too, has also had some success in training/running sneakers.
The bottom line is that Nike is under attack, and it needs to show Wall Street that its basketball business has bottomed and other categories are not just holding their own in the market, they are putting up nice gains despite the competitive threats.
Guidance: Nike reported last quarter that future orders, excluding the impact of the strong U.S. dollar, rose a solid 17%. At the time, Wall Street wanted a higher number based on Nike's inevitable new product releases around the summer Olympics. Now, with the retail sector globally in turmoil due to sluggish consumer spending and the shift to digital, Wall Street needs to see Nike post another double-digit gain -- excluding currency -- for its future orders. It would go a long way to support a view that Nike shares have been oversold and that the company remains strong against a volatile retail backdrop.