Nike's disappointing earnings drag on European sports retailers

Shares of sportswear maker Puma fell more than 2% at the open on Friday, December 19, which made it one of the worst performers in the pan-European STOXX Europe 600, after weak results from Nike weighed on sector sentiment, CNBC reports. By the time of this writing, Puma had recovered part of the losses. Adidas stock also dropped as much as 1.5% earlier in the session before later paring the decline to reach minus 0.3%.

In its fiscal second quarter, Nike reported a 17% year-over-year decline in revenue in "Greater China," while higher tariffs pressured profitability, pushing the company’s gross margin down by three percentage points. For its current, third quarter, Nike guides for revenue to decline by a low-single-digit percentage, around 1.3%. The company forecast moderate growth in North America, while trends in China are expected to remain in line with the previous quarter. Gross margins are also set to decline further, Nike said.

The company has refrained from issuing full-year guidance for several quarters as turnaround efforts continue. On the earnings call, Nike’s CEO emphasized that "Nike is in the middle innings of our comeback. We are making progress in the areas we prioritized first and remain confident in the actions we’re taking to drive the long-term growth and profitability of our brands." Investors, however, were disappointed that the recovery is taking longer than expected.

Meanwhile, Jefferies analyst Randal Konik was encouraged by the earnings, Barron's writes. He said they “confirm the turnaround is gaining traction” and thus maintained his "buy" rating on the stock at a price target of $110 per share, implying upside of nearly 70% from the latest close. That is among the most optimistic valuations on Wall Street, according to MarketWatch data.