Will NIKE's (NKE) CDO Strategy Fuel Q1 Earnings Amid Hurdles?

NIKE, Inc. (NYSE:NKE) is slated to release first-quarter fiscal 2018 results on Sep 26. The question lingering in investors’ minds is whether this athletic goods behemoth will be able to post a positive earnings surprise in the quarter to be reported. Notably, NIKE has delivered positive earnings surprises for 20 straight quarters. In the trailing four quarters, the company delivered an average positive surprise of 25%. So, let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 48 cents, which is way below the year-ago period figure of 73 cents. We note that the Zacks Consensus Estimate has remained nearly stable over the past 30 days. Additionally, analysts polled by Zacks expect revenues of roughly $9.1 billion, up slightly by 0.2% from the year-ago quarter.

Factors at Play

NIKE’s progress on its strategic initiatives has been reflected in every quarter’s results for over three fiscal years now. The company has been gaining from its robust growth and innovation efforts, which along with reduced expenses fueled the bottom line in the last quarter. The company is also benefiting from strong e-commerce initiatives. Notably, the enhancement of digital platform has led NIKE to nearly double its revenue contributions from NIKE.com and its apps in just two years, going over the $2 billion contribution mark in fiscal 2017. Incidentally, global Direct-to-Consumer businesses and growth at international locations largely augmented NIKE’s top line in fourth-quarter fiscal 2017.

Apart from this, management remains confident of growth drivers like efficient supply chain and enhanced sync between the digital and physical experiences. Moreover, the company is focused on Consumer Direct Offense (“CDO”) plan, which focuses on using digital methods for rapid innovation and product development, along with strengthening consumer relations by operating through core regions. This, in turn is backed by its “triple-double” strategy which is aimed at doubling innovation, speed and direct connection with customers. All these factors reflect Nike’s growth prospects.

However, NIKE has been battling soft sales in North America owing to lackluster product assortments and intensified competition. The company’s wholesale business in the region has also been impacted due to increased focus on online sales. Moreover, the overall environment is expected to remain promotional in North America, which is likely to hurt results in this segment. Furthermore, adverse currency movements are expected to continue weighing upon NIKE’s performance, as evident from its outlook. Evidently, the company anticipates reported revenues to be flat in first-quarter fiscal 2018, with gross margin forecasted to contract 150-180 bps due to currency headwinds.

Together, currency woes and difficult trends in North America make us cautious about the company’s overall performance. So, let’s see if NIKE’s robust strategies and e-commerce strength can manage to offset the hurdles and keep its splendid surprise streak alive. While the company’s shares have jumped 5.7% year to date, it has lagged the Zacks Consumer Discretionary Sector’s 13.8% growth.



What the Zacks Model Unveils?

Our proven model does not conclusively show that NIKE is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NIKE currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00%, as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 48 cents. The combination of NIKE 's Zacks Rank #3 and Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

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

Constellation Brands, Inc. (NYSE:STZ) has an Earnings ESP of +0.99% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Build-A-Bear Workshop, Inc. (NYSE:BBW) has an Earnings ESP of +13.79% and a Zacks Rank #2.

Whirlpool Corporation (NYSE:WHR) has an Earnings ESP of +1.38% and a Zacks Rank #3.

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