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Nike earnings slide as the megabrand struggles

(NEWS) The big parts of the economy machine are moving – What do Nike’s movements say about the economy machine as a whole?

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Just do it… or don’t

Nike (NYSE:NKE) announced its fiscal third quarter earnings on Tuesday March 21. The footwear maker beat consensus estimate of $0.53EPS (earnings per share), by earning $0.68 EPS instead. That is $0.15 more than market predictions.

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However, its revenue earnings of $8.43 billion fell short of market expectations, hedged at $8.47 billion instead.

The descent

This revenue failure has offset any positive news coming from its EPS performance. On March 22, the day after the earnings declarations, Nike’s stock fell by 7%.

It has recovered only partially since, mostly by bargain hunters rather than strong confidence in its shares.

The athletic brand’s revenue actually grew by 5%, but the market seemed unimpressed. In Q3-2016, Nike’s rate was 7.7%. Their growth figures mostly came from overseas. Sales in emerging markets is up by 13%, especially in Greater China (8%).

In the US, a very competitive market, sales were up only 4%.

The recent earnings report clearly shows Nike has pressured sales growth, 16% off its lifetime high.

Working through it

Analysts were also quick to raise doubts about the sports brand’s “low quality” EPS growth.

Nike’s growth came not from increased sales, but due to other intervening factors.

For instance, they took advantage of a low 13.8% tax rate, and more than half of its revenue came from low-tax regions, and places with other tax benefits.

Many analysts now see a downward trend in Nike’s gross margin, which keeps falling consistently every quarter.

In the latest earnings call, the athletic powerhouse announced a decline of 140 basis points.
It is now clear that Nike could not shake off completely the ailing factors that it struggled to manage all throughout 2016—inventory challenges (over-stocked and under-sold) leading to discounts, and competition (chiefly from Adidas and Under Armor) taking away its American market share.

Market woes

This is especially worrisome for the company, as the brand’s future orders declined 4% as per reports.

Almost half of Nike’s revenue comes from the U.S. market and success at home is crucial.

The swoosh company has provided soft sales growth outlook for fourth quarter, indicating lower revenues than third quarter sales.

This, more than anything else, threatens the footwear giant’s future earnings growth potential.

Nike’s earnings figures may improve once the company adjusts its vast inventory in what the company has labeled as “edit to amplify” step.
It plans to cut 25% of its product line and focus instead on 75% of its products that bring in 99% of sales.

Plan of attack

Nike also plans to cut its product creation cycle by half, and invest more on direct-to-consumer sales, especially through digital offerings.

Nike saw a boost of e-commerce of 18%, which its CEO Mark Parker described as the “foundation” of the company’s future.

Moreover, international markets shall continue to grow for Nike, outpacing its competitors.

Comeback kid

Nike has faced challenges before but have beat back the competition.

For example, Nike’s stock fell 18% last year due to retail challenges and heightened competition. But it recovered its losses.

“Last year we were losing share in the basketball market in North America and now we’re taking it back,” said Trevor Edwards, Nike Brand president during the earnings call.

All hands on deck

On March 29, Nike insider Eric D. Sprunk sold 50,000 Nike shares, in an attempt to boost the stocks.

Other institutional investors have also recently bought shares of the stock, including DZ Bank, Carmignac Gestion, Norges Bank, and Russell Investments Group Ltd.

Brokerages and equity analysts seem divided on their verdict of Nike.

For example, Vetr cut Nike from a rating of “strong buy” to “buy” at a price target of $ 60.36, and then upgraded them back up to “strong buy” at $63.24.

B. Riley on the other hand, stuck with a “neutral” rating with a price target of $56.00.

11 equity research analysts rated the stock as “hold”, 3 as “sell” and 24 as “buy”. Nike seems to have a consensus price target of $61.38 with a “buy” rating.

For now

Although the stock market has been harsh on Nike for the last two weeks, Wall Street is putting its trust on it for now. While Wall Street does that, independent retailers use Nike’s performance metrics as a litmus test for their own.

On April 3rd, Nike opened at $55.73.

#NikeStock

Barnil is a Staff Writer at The American Genius. With a Master's Degree in International Relations, Barnil is a Research Assistant at UT, Austin. When he hikes, he falls. When he swims, he sinks. When he drives, others honk. But when he writes, people read.

Business News

Are Gen Z more fickle in their shopping, or do brands just need to keep up?

(BUSINESS NEWS) As the world keep changing, brands and businesses have to change along with it. Some say Gen Z is fickle, but others say it is the nature of change.

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Gen Z woman shopping outside on a laptop.

We all know that if you stop adapting to the world around you, you’re going to be left behind. A recently published article decided to point out that the “fickle” Gen Z generation are liable to leave a poor digitally run site and never return. Now of course we’ve got some statistics here… They did do some kind of due diligence.

This generation, whose life has been online from almost day one, puts high stakes on their experiences online. It is how they interact with the world. It’s keyed into their self-worth and their livelihoods, for some. You want to sell online, get your shit together.

They have little to no tolerance for anything untoward. 80% of Gen Zers reported that they are willing to try new brands since the pandemic. Brand loyalty, based on in-person interaction, is almost a thing of the past. When brands are moved from around the world at the touch of your fingertips there’s nothing to stop you. If a company screws up an order, or doesn’t get back to you? Why should you stick with them? When it comes to these issues, 38% of Gen Zers say they only give a brand 1 second chance to fix things. Three-quarters of the surveyed responded saying that they’ll gladly find another retailer if the store is just out of stock.

This study goes even further though and discusses not just those interactions but also the platforms themselves. If a website isn’t easy to navigate, why should I use it? Why should I spend my time when I can flit to another and get exactly what I need instead of getting frustrated? There isn’t a single company in the world that shouldn’t take their webpage development seriously. It’s the new face of their company and brand. How they show that face is what will determine if they are a Rembrandt or a toddlers noodle art.

The new age of online shopping has been blasted into the atmosphere by the pandemic. Online shopping has boosted far and above expected numbers for obvious reasons. When the majority of your populace is told to stay home. What else are they going to do? Brands that have been around for decades have gone out of business because they didn’t change to an online format either. Keep moving forward.

Now as a side note here, as someone who falls only just outside the Gen Z zone the articles description of fickle is pompous. The stories I’ve heard of baby boomers getting waiters fired, or boycotting stores because of a certain shopkeeper are just as fickle and pointed. Nothing has changed in the people, just how they interact with the world. Trying to single out a single generation based on how the world has changed is a shallow view of the world.

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Business News

Chasing Clubhouse success? How the audio chat room trend affects products

(BUSINESS NEWS) It is inevitable that when a new successful trend comes along, other companies will try to make lightning strike twice. Will the audio chat room catch on?

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Smiling woman seated in dark room illuminated by lamp and phone light, participating in audio chat room.

Businesses are always about the hot new thing. People are the always looking for the easiest dollar with the least amount of effort these days. It tends to lead to products that are shoddy and horribly maintained with the least amount of flexibility in pleasing their customers. However, you also have to look at the customer base for this as well. You follow where the money is because that’s where its being spent. It’s like a merry-go-round, constantly chasing the next thing. And the latest of these is the audio chat room.

During the pandemic the entire world saw an eruption of social audio investments. Silicon Valley has gone crazy with this new endeavor. On the 18th of April this year, Clubhouse said it closed on some new funding, which was valued at $4 billion for a live audio app. This thing is still in beta without a single penny of revenue!

The list of other companies who have pursued new audio suites (either through purchase or creation) include:

  • Facebook
  • Spotify
  • Twitter
  • Discord
  • Apple

This whole new audio fad is still in its infancy. These social media and tech giants are all jumping headlong into it with who knows how much forethought. A number of them have their own issues to deal with, but they’ve put things aside to try and grab these audio chat room coattails that are running by. It’s a mix of feelings about the situation honestly. They are trying to survive and keep their customers.

If a competitor creates this new capability and they stay stagnant then they lose customers. If they do this however without dealing with their current issues then they could also lose people. It’s an interesting catch 22 for people out there. Which group do you fall in? Are you antsy for a new toy or are you waiting for one of these lovely sites to fix a problem? It’s another day in capitalism.

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Business News

This web platform for cannabis is blowing up online distribution

(BUSINESS NEWS) Dutchie, a website platform for cannabis companies, just octupled in value. Here’s what that means for the online growth of cannabis distribution.

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A small jar of cannabis on a desk with notebooks, sold online in a nicely made jar.

The cannabis industry has, for the most part, blossomed in the past few years, managing to hit only a few major snags along the way. One of those snags is the issue of payment processing, an issue compounded by predominantly cash-only transactions. Dutchie, a Bend, Oregon company, has helped mitigate that issue—and it just raised a ton of money.

Technically, Dutchie is a jack-of-all-trades service that creates and hosts websites for dispensaries, tracks product, processes orders, keeps stock of revenue, and so much more. While it was valued at around $200 million as recently as summer of 2020, a round of series C funding currently puts the company at around $1.7 billion—approximately 8 times its worth a mere 8 months ago.

There are a few reasons behind Dutchie’s newfound momentum. For starters, the pandemic made cannabis products a lot more accessible—and desirable—in states in which the sale of cannabis is legal. The ensuing surge of customers and demand certainly didn’t hurt the platform, especially given that Dutchie is largely responsible for keeping things on track during some of the more chaotic months for dispensaries.

Several states in which the sale of cannabis was illegal also voted to legalize recreational use, giving Dutchie even more stomping ground than they had prior to the lockdown.

Dutchie also recently took on 2 separate companies and their associated employees, effectively doubling their current staff. The companies are Greenbits—a resource planning group—and Leaflogix, which is a point-of-sale platform. With these two additions to their compendium, Dutchie can operate as even more of an all-in-one suite, which absolutely contributes to its value as a company.

Ross Lipson, who is Dutchie’s co-founder and current CEO, is fairly dismissive of investment opportunities for the public at the moment, saying he instead prefers to stay “focused with what’s on our plate” for the time being. However, he also appears open to the possibility of going public via an acquisition company.

“We look at how this decision brings value to the dispensary and the customer,” says Lipson. “If it brings value, we’d embark on that decision.”

For now, Dutchie remains the ipso facto king of cannabis distribution and sales—and they don’t show any plans to slow down any time soon.

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