After the market closes on Sept. 26, Nike (NYSE:NKE) will report its earnings for the first quarter of fiscal 2018, which ended at the end of May. For this earnings release, it will be important to listen to what management has to say about footwear sales trends in North America, where Adidas (NASDAQOTH:ADDYY) has been running circles around Nike. The dichotomy between these two companies' performances is evident in their respective stock performances over the last year: Nike stock is down about 5%, while Adidas has climbed 44%.

Let's dive in to what you need to know heading into Nike's report.

What to expect

Expectations are low. Wall Street analysts expect Nike to report $0.48 in earnings per share, down from last year's $0.73. As for revenue, analysts expect Nike to report $9.09 billion, about flat with last year's $9.1 billion. 

Keep in mind, of course, that we don't want to play Wall Street's short-term-expectations game. We're looking at analyst expectations only because stock prices often go up or down following an earnings report depending on whether the company misses or exceeds those expectations. Foolish investors, however, should pay more attention to the bigger picture by focusing on what management has to say about growth initiatives.

Nike Air VaporMax running show in white with translucent blue colored sole.

Nike is hoping new innovations like the new Air VaporMax will reignite footwear sales growth. IMAGE SOURCE: NIKE.COM. 

On the last quarterly conference call, Nike's guidance for both the fiscal first quarter and the full fiscal year 2018 didn't give investors much encouragement, since it was more of the same of what we've seen over the past several quarters. For fiscal 2018, management expects mid- to high-single-digit revenue growth on a currency-neutral basis. The slow growth trend has kept the stock price in check, but investors don't seem to be panicking, since the company is making improvements to its product-creation process that promises to improve growth in the next few years.

The company's investments to double the speed with which new styles get to market should begin to bear fruit as we enter calendar year 2018. The benefits of this initiative will help contribute 30 to 50 basis points to gross margin for the full year. Management also expects to grow operating income at a double-digit rate.

Nike's North America footwear sales have been weak

Adidas has been far outpacing Nike in footwear sales and is expected to report revenue growth of 17% to 19% for calendar 2017. Before the recent slowdown, Nike was maintaining mid-teens level growth in annual footwear sales, but sales dramatically slowed down last year. While Nike was slowing down, Adidas was shifting into higher gear, with footwear growth of 21% in 2016.

The gains are most notable for Adidas in Nike's home territory of North America, where Adidas has grown 31% and 26% in Q1 and Q2 of 2017, respectively. Nike posted only 4% growth in the North America region for fiscal 2017.

To make matters worse, Foot Locker (NYSE: FL), which purchased 68% of its supply from Nike last year, reported that sales of Jordan brand shoes "slowed considerably" in the last quarter. Jordan has been Nike's best-performing brand, with revenue up 13% in fiscal 2017 while several other categories, including running and Nike basketball, declined or posted single-digit growth. Foot Locker also blamed changing consumer preferences, lack of demand for top styles, and lack of innovation from premium footwear brands for its soft quarter, which indirectly points the finger at Nike, since the Oregon-based company is Foot Locker's largest supplier.

Don't count Nike out

It hasn't looked good for Nike lately, but I don't think investors should run for the exits. It's important to keep in mind that Nike's improvements to its design process, manufacturing, and supply chain could be a game-changer over the next few years. This will help Nike increase margin, as it will be able to sell more product at full price from better inventory management. It will also significantly increase the speed with which Nike creates a new design and gets the finished product to market, helping it better compete in a market where consumers can easily shift tastes, which has clearly hurt Nike recently.

Nike is already beginning to release new designs as a result of these improvements. The Air VaporMax cushioning system saw success out of the gate in the fiscal fourth quarter, as did the new Zoom Vaporfly 4% running shoe released earlier in the summer. There's more innovation coming, which Foot Locker expects to improve demand in footwear through the fall. Investors should pay particular attention to how management characterizes demand for these latest products in the coming quarters.

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool has a disclosure policy.