Nike has said its basketball business is back on track. Investors will be looking for proof in 2017. PHOTO: GETTY IMAGES
Even though Nike pitchman Lebron James bested Under Armour star Stephen Curry in the 2016 NBA Finals, Nike’s new basketball sneakers fell flat. That’s one reason the stock dropped 19% this year, more than any other Dow component. Company executives are optimistic about a comeback in 2017. Investors need to keep track of the following issues.
1. Is basketball really back at Nike?
Nike President Trevor Edwards said “basketball is back” on the company’s latest earnings conference call. But saying it doesn’t make it so, and investors are clearly skeptical. The company that invented the modern basketball shoe is now being outpaced by Adidas and Under Armour, and has had to discount some of its latest shoes after people balked at paying high prices. One analyst predicted the company won’t release game-changing new sneakers again until at least 2018. Nike will have to prove them wrong next year.
2. Has “athleisure” peaked?
Athleisure, the clothing trend that’s made it acceptable to wear workout gear outside the gym, has been a boon for Nike. But the competitive atmosphere is getting more crowded, with even Gap’s Old Navy selling $15 yoga pants. One analyst said this month that athleisure appears to have peaked. In fact, he thinks the next big trend in pants could be jeans. Remember those?
3. Will a strong dollar sink profits?
Nike’s a major exporter, and the value of the dollar has risen this year. That makes it harder to sell goods overseas, because Nike’s prices look even higher when the dollar is strong. Nike has little power over whether the dollar continues to rise against other currencies, but the outlook isn’t great. The Fed is likely to hike interest rates next year, and the dollar tends to rise when rates do.
Big Picture: Nike had a very rough 2016, but the company is confident heading into the new year.