Nike Understands the Problem. Can It Do Anything About It?

Heading into last night's earnings, Nike ( NKE ) was the second-best performing stock in the Dow Jones Industrial Average . Following its earnings release, it's the eighth best, despite easily topping earnings forecasts. What gives? Nike reported a profit of 68 cents a share , topping the Street consensus for 53 cents. but the beat, according to Canaccord Genuity's Camilo Lyon and Pallav Saini , was a "low quality" one, with the upside provided by reduced expenses, and a lower tax rate, among other items. Nike's sales also missed analyst forecasts, and gross margins were cut by 1.46 percentage points, worst than the 0.33 drop Lyon and Saini had predicted. They claim that Nike "understands the market dynamics are shifting, not only with respect to the digital disruption ongoing in NA retail, but also with respect to the competitive landscape ," but worry that changes will rake a while. They explain: