Nike's Previous 4 Prints Pave Way For A Grand Slam

Mark Your Calendar For March 21

Athletic footwear, apparel and accessories maker Nike is scheduled to report its fiscal third-quarter financial results after the market closes on Tuesday.

The Expectations

Analysts, on average, expect the company to report earnings of $0.53 per share on revenues of $8.47 billion. In the year-ago quarter, the company reported earnings of $0.55 per share on revenues of $8.03 billion.

In the four quarters ahead of the third quarter, the company has consistently beaten estimates, with the upside surprise percentage ranging between 2 and 30 percent.

The earnings per share estimate for the third quarter was scaled back to $0.53 from $0.60 that was expected 90 days ago. In its preview of the third-quarter results, UBS analyst Michael Binetti said he expects earnings of $0.51 per share, with 5 percent global revenue growth and 1.7 percent North American revenue growth. The analyst, however, forecasts a 4 percent decline in North American futures order growth.

Forward Guidance

The company has guided third-quarter reported revenue growth to be in the mid-single-digit range and for the full year, reported revenue growth in the high-single-digit range.

How Nike Fared In The Preceding Quarter

In the second quarter, Nike reported revenue growth of 6 percent year-over-year to $8.18 billion, while its net income climbed 7 percent to $842 million. Earnings per share improved to $0.50 from the year ago's $0.45.

Gross margin, however, contracted to 44.2 percent from 45.6 percent in the year-ago quarter, with the company attributing it to higher product costs, unfavorable forex rates and the impact of higher off-price sales more than offsetting higher average ASPs.

The company derived roughly 45 percent of its revenues from North America, 17 percent from Western Europe and roughly 13 percent each from Greater China and the Emerging Markets. Revenues from Greater China were up an impressive 12 percent.

Cash and cash equivalents at the end of the quarter stood at a healthy $3.7 billion.

Futures Orders — No Longer Relevant?

The company said in its earnings call that worldwide currency-neutral futures orders were growing 2 percent, helped by 1 percent increases each in unit and ASPs. However, on a reported basis, futures orders were flat. The company, however, said it now sees less correlation between revenues and futures orders.

During the quarter, it was rumored that Nike's China offices were being inspected by Chinese officials. The company also unveiled Nike Pro Hijab, a head scarf, for women athletes belonging to the Arab world, who compete in international sports. The product will be available by the spring of 2018, the company said.

Sell-Side Sentiment

Based on Yahoo Finance's database, the average analyst recommendation for the company's stock is a Buy, while the average price target is $62.47.

• Recently, UBS reiterated its Buy rating on the shares of Nike. UBS raised its price target to $67 from $61, believing Nike's challenges are temporary and cleaner inventories in the full price channel should help reverse recent gross margin headwinds.
• Stifel has a Buy rating and a $69 price target for the shares of Nike. Analyst Jim Duffy said the focus remains on Nike, relative to competition.
• Credit Suisse rates Nike an Outperform, while it has a $67 price target.

Stock Performance

Nike shares, which saw a reversal and headed southward since late 2015, bottomed out in November 2016, just ahead of the Presidential election. Subsequently, the stock was in recovery mode. Over the past year, Nike shares have shed 7.29 percent, although in the year-to-date period, they have gained close to 15 percent.

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How The Athletic Footwear Market Has Changed In Recent Years How To Position Ahead Of Nike's Q2 Earnings Report