Nike is facing unprecedented headwinds
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But following its most recent earnings reports, investors and analysts are getting worried about the future of one of the world's most dominant retailers.
Even though revenue grew 6%, the earnings report for the fourth quarter of fiscal 2016 "confirms headwinds are strengthening," Morgan Stanley analysts wrote.
The company missed expectations, and shares fell following the report.
Things are probably not going to get easier for Nike, even if things look good on the surface.
Morgan Stanley told investors that it is not "safe" to buy Nike stock right now. ("We say no," the analysts wrote.)
Here are some of the major problems currently facing the company.
Intense, mounting competition
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Morgan Stanley specifically points to increasing competition from Adidas and Under Armour. Though Nike is substantially larger than both brands (for fiscal 2016, it became a $32.4 billion company), they both have the ability to cut into fractions of Nike's market share, thereby crippling its vastness or hindering the speed of its growth in the future.
And both Adidas and Under Armour have made promising partnerships. Adidas, already successful with Kanye West's Yeezys, recently announced a full-on, long-term partnership with West, cementing its status as a major player in the fused worlds of music and sneakers.
Under Armour has found a hero in basketball MVP Stephen Curry. Though sales of Curry's shoes have nothing on Nike's, they're growing rapidly, and Under Armour CEO Kevin Plank has repeatedly acknowledged how Curry has contributed to its growth. Analysts have gone so far to estimate that Curry could be worth as much as $14 billion to Under Armour.
This is a problem that is facing Lululemon, too - and a lot of people looked past that, because, as Mizuho Securities Managing Director Betty Chen told Business Insider, it's "the better house on a bad block."
Nike has a similar problem, and, like Lululemon, is able to hide these problems behind sales growth and a strong, beloved brand.
Nike acknowledged that ridding itself of excess inventory had a negative impact on the company's report - it caused gross margins to decline 30 basis points.
The company anticipates that it will still have excess inventory going into the first quarter of fiscal 2017.
"As we go into the next quarter we expect clearly to remain in excess inventory through our factory stores and also through select third party value channels," Nike President Trevor Edwards said on a recent earnings call.
He defended the inventory, in part, by explaining how the company constantly brings in new products. Constant innovation, after all, is a hallmark of Nike's branding - from moisture-adapting apparel to self-lacing sneakers.
"But overall the inline full price market is clean and we continue to just make sure we maintain and sustain a healthy pull market and also to bring into new products and make sure that we are actively, proactively managing the flow of product into the marketplace," he said.
Basketball is losing strength
The company reported that sales of its basketball shoes were down -1%.
This comes on the heels of a recent UBS note, which pointed out how investors are concerned that basketball trends are slowing down. This is especially a concern since basketball apparel accounts for 12-14% of Nike's business.
In good news, though, UBS says that the trend for Air Jordan sneakers are still "strong," and that was proven true in the fourth quarter: sales for the Jordan brand were up 18%.
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