Nike Inc (NYSE:NKE)
Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports September 27, After Market Closes
Key Takeaways
- The Estimize consensus is calling for earnings per share of 57 cents on $8.86 billion in revenue, 1 cent higher than Wall Street on the bottom line and right in line on the top
- Nike is seeing pressure on future orders and margins in recent quarters, two of the company’s key metrics
- Nike is still leaps and bounds above the competition but the gap is slowly narrowing with Adidas (DE:ADSGN), Under Armour Inc (NYSE:UA) and lululemon athletica inc (NASDAQ:LULU) gaining steam in recent quarters
Headlining this slow week of earnings is multinational athletic apparel and footwear brand, Nike. Nike had been one of the best large cap growth stories of the past 5 years but that is starting to change. Increasing competition and an volatile retail space are spelling hard times for Nike this quarter. Earnings expectations are the lowest they’ve been in over 2 years, resulting in a downturn in the stock. Shares are down 8% in the past month and about 13% year to date.
Analysts at Estimize are calling for earnings per share of 57 cents, down 14% from a year earlier. That estimate has declined 15% since Nike’s most recent report in June. Revenue for the period is estimated up 5% to $8.86 billion, marking a slight slowdown from previous quarters. Historically the stock increases 2% following an earnings report but based on how it has been trending, that doesn’t seem likely tomorrow.
Typically, the two most important metrics Nike reports are future orders and margins. Future orders make up a large chunk of Nike’s revenue in a given quarter. It represents a commitment to retailers that orders placed 5-6 months in advance will be delivered during a set time period at a fixed price, like a future’s contract. Nike has been hammered in this department despite continually delivering double digit gains. That bar has been set so high that it’s unlikely they will be able to meet expectations.
Meanwhile, margins are a representation of Nike’s pricing power over the competition. Nike shoes were once a status symbol for which consumers were willing to shell out top dollar. That is no longer the case and Nike must resort to discounting to move its product, which has undermined margin expansion in recent quarters.
Along those lines, increasing competition has been one of the company’s biggest threats. Nike is still leaps and bounds ahead of Adidas, Under Armour and Lululemon, but the gap is closing. Adidas’ strong pipeline combined with Under Armour seizing Stephen Curry’s growing popularity is infringing on Nike’s dominance. Lululemon has also played a role in Nike’s considerable slowdown. Lululemon is perhaps Nike’s biggest competitor in terms of athleisure sales.
Fortunately, this summer’s sporting calendar featured the Euro soccer tournament and Olympics. These 2 events don’t occur annually so their presence this year could provide an additional boost. 