Dive Brief:

• Faced with mounting competitive pressures in the athletic apparel segment, Nike on Tuesday reported that quarterly profit grew 7% on stronger consumer demand at home and abroad, but its stock tumbled back down on news that future orders remain a sticking point.

• Nike posted second quarter fiscal 2017 revenue gains of 6% to $8.2 billion, beating Thomson Reuters' consensus forecast of $8.09 billion, or 8% on a currency-neutral basis.

• Nike Brand Q2 revenue climbed 8% $7.7 billion, driven by double-digit currency neutral growth in Western Europe, Greater China and emerging markets, as well as advances in the sportswear and running categories. Converse revenue for Q2 reached $416 million, up 5% on a currency-neutral basis, driven by growth in North America.

Dive Insight:

Nike shares rose as much as 5% in after-market trading Tuesday before falling back to earth. While currency-neutral futures orders are growing 2%, driven by a 1% increase in units (with growth in average selling prices contributing the other single percentage point), futures orders are flat versus the prior year on a reported basis. In North America, future orders are down 4%, according to a transcript of the call from Seeking Alpha.

Nike has downplayed the meaning of future orders growth, and CFO Andy Campion on Tuesday reiterated why the company hasn’t included the metric in its press releases of late. “[F]uture orders growth and reported revenue growth have become increasingly less correlated,” Campion said. “That lesser correlation is evidenced by the roughly 5 percentage point disparity between our guidance for Q3 reported revenue growth and our futures growth on a reported basis. The longer-term, more systemic drivers of the disparity include, first, impacts related to our evolving direct-to-consumer versus wholesale business mix.”

Direct-to-consumer are reported on a wholesale-equivalent basis, yet reported revenue for that segment is based on the full retail price to consumers. That means that as the mix of futures shifts toward direct-to-consumer, Nike's overall reported revenue will inherently grow faster than futures, Campion said.

“In short, the key takeaway is that our revenue guidance reflects a much more comprehensive outlook for our business, as compared to using reported futures orders growth as a proxy,” he said.

Analysts, however, continue to view Nike’s inventory build-up and future orders slowdown as a reflection of healthy growth at rivals Under Armour and Adidas. The latter in particular is on a warpath, upping its game after years of stumbles, losing market share and eventually forfeiting its second place spot in the sportswear market to Under Armour. Adidas additionally is taking a different approach to Nike with its endorsement deals, opening them up to not only athletes but also creatives like entertainer Kanye West. 

Nike president Trevor Edwards, widely seen as CEO Mark Parker’s most likely successor, said that the company now has a handle on the push-pull of supply and demand in North America, and has other reasons to be sanguine about its prospects.

“[W]e’re seeing incredible momentum in basketball, to be clear basketball is back,” Edwards told analysts. “Second, we have made tremendous progress aligning supply and demand in North America, returning this important geography to a pull market. And third, we continue to see strong and steady momentum in greater China as we invest in that market to fuel growth.”