Nike's Lacing Up Earnings This Winter

Nike (NKE) Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports December 22, After Market Closes

Key Takeaways

• The Estimize consensus calls for revenue of $7.838 billion and EPS of $0.89, slightly more bullish than Wall Street's estimates.
• Nike's long term growth will be driven by strong global reach, ongoing product innovations and an expanding direct to consumer business.
• Despite a strong U.S. dollar, Nike has offset pressure on margins with price increases, lower labor costs and a DTC strategy.
• What are you expecting for NKE? Get your estimate in here!

Best known for its transcendent swoosh, Nike (NKE) is expected to report FQ2 2016 earnings on December 22nd. Although the retail industry has fluctuated, Nike has consistently beat analysts' estimates with share prices increasing 30% just this year. Poised for another solid report,the Estimize consensus calls for revenue of $7.838 billion and EPS of $0.89, slightly more bullish than Wall Street's estimates of $7.785 billion and EPS of $0.85.  Compared to FQ2 2015, this represents a YoY increase in revenue and EPS of 6% and 20%, respectively. Despite its size and market share, Nike still manages to post above average growth rates, driven by a strong global reach, ongoing product innovation and an expanding direct to consumer (DTC) business.

International markets have consistently generated more than half of all Nike's sales in any year. Given the strength of the dollar and foreign currency headwinds, there has been growing concern of dampened sales and margins. In spite of this, Nike is supporting healthy growth around the world. While a majority of Nike's currencies have weakened, global margins have remained unaffected, offset by rising average shoe prices, Nike's direct to consumer strategy and greater operational efficiencies.

In China, Nike is expected to revitalize growth supported by a greater demand for active wear. Nike continues to take proactive measures to improve distribution channels and DTC business in China. Despite China's economic woes, Nike has performed remarkably well and saw revenue increase 30% last quarter. That being said, Nike also expects to remain strong in Europe amidst a deceleration in soccer sales. Key sectors such as running, cross-training and basketball are expected to keep the company modest as they amplify their direct to consumer and merchandising. Given how well Nike performs on the global stage, the upcoming Eurocup and summer Olympics will help propel the company amid concerns of slowing growth.

Long term, Nike is making investments to create sustainable and profitable manufacturing infrastructure. Automated manufacturing can help offset rising labor, production and material costs. Through increased manufacturing investments, Nike expects to improve margins, increase prices and transition away from wholesalers to DTC. A direct to consumer strategy minimizes the overhead costs of selling in brick and mortar stores or to wholesalers. A large portion of Nike's DTC business has been tied to the success of its e-commerce platform which has grown almost 50% in the past quarter.  

NKE data by YCharts

Do you think NKE can beat estimates? There is still time to get your estimate in here!

Photo Credit: Peter Fletcher