Avoid the swoosh, investors. I think there is more bad news ahead for Nike Inc. (NKE) .
The company, whose shares are up just 5% year to date, reports results for the fourth quarter and fiscal year 2017 (ended May) on Thursday, so beware. Nike is expected to post fourth-quarter earnings per share of $0.50 on revenue of $8.6 billion. For the full year, analysts are looking for EPS of $2.41 and total revenue of $34.3 billion.
On its third-quarter conference call, management failed to provide much guidance for the fourth quarter (or the year ahead). Usually management provides guidance during the third quarter, so the lack of commentary is unnerving and to me, likely means bad news down the road.
Nike reported third-quarter EPS of $0.68, $0.15 better than expected. Revenue rose 5%, year to year, to $8.43 billion. While the bottom-line number beat expectations, about $0.11 of that came from lower spending and $0.05 from a lower tax rate. Excluding that, Nike would have missed.
But the big disaster in the third quarter was gross margin, which was down 140 basis points. By my count this was the fourth consecutive quarter Nike missed gross margin estimates. And it doesn't look like it's getting any better.
Analysts are forecasting fourth-quarter margins to narrow 150-160 basis points to 44% and revenue to grow just 4.5%. Just two year ago, sales were growing 10% annually and gross margin was over 46%.
Inventory has been growing faster than sales for more than two years now. Retailers are heavily discounting Nike products and competition from Adidas (ADDYY) is really taking a toll. The company has lost floor space in stores such as Foot Locker (FL) and Finish Line (FINL) .