NIKE (NKE) To Report Q2 Earnings: What's In The Offing?

NIKE Inc. (NYSE:NKE) is slated to release second-quarter fiscal 2020 results on Dec 19. In the last reported quarter, the leading sports apparel retailer delivered a positive earnings surprise of 21.1%. Moreover, its bottom line beat estimates by 9.6%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s earnings for the fiscal second quarter is pegged at 57 cents, suggesting growth of 9.6% from the year-ago reported figure. Estimates have been unchanged over the past 30 days. The consensus estimate for the fiscal second-quarter sales is pegged at $10,080 million, indicating 7.5% growth from the prior-year quarter’s reported number.

Key Factors to Note

NIKE has been witnessing robust top and bottom-line performances on gains from its Consumer Direct Offense strategy that focuses on product innovation and strengthening of the digital platform. Further, strength in Greater China — one of its key markets — and a robust digital business have been aiding top-line growth.

Additionally, continued growth in NIKE digital and strength in the sportswear category, led by the Jordan brand, are expected to have boosted the North America segment’s performance. The company has been gaining from efforts to bolster its position in the North America market, with growth in NIKE digital as well as investments to deliver differentiated partner experiences.

In the last earnings call, management had expected continued investments in key platforms like React and Air sportswear categories to aid sales. Further, it anticipates results to benefit from continued brand recognition, robust innovation pipeline and positive response from Nike Direct as well as wholesale partners.

Consequently, for second-quarter fiscal 2020, the company anticipates revenue growth similar to the level of first-quarter fiscal 2020. On a currency-neutral basis, it expects strong revenues for the fiscal second quarter despite currency headwinds. The company anticipates adverse currency rates to hurt currency-neutral revenues by 3 percentage points in the quarter under review.

However, it has been witnessing cost-related headwinds for a while now. Higher SG&A expenses, driven by continued investments in digital transformation and brand marketing, are expected to have hurt the company’s operating margin in the quarter under review. For second-quarter fiscal 2020, the company envisions high-single-digit rise in SG&A expenses. Furthermore, it expects the fiscal second-quarter gross margin results to reflect pronounced impacts of increased tariffs.

Zacks Model

Our proven model does not conclusively predict an earnings beat for NIKE this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although NIKE carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

lululemon athletica inc (NASDAQ:LULU) currently has an Earnings ESP of +1.32% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CarMax, Inc (NYSE:KMX) presently has an Earnings ESP of +0.21% and a Zacks Rank #2.

General Mills, Inc (NYSE:GIS) currently has an Earnings ESP of +1.58% and a Zacks Rank #3.

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