Will Soft Sales Hurt NIKE's (NKE) Solid Earnings Trend In Q4?

NIKE, Inc. (NYSE:NKE) is slated to release fourth-quarter fiscal 2017 results on Jun 29. The question lingering in investors’ minds is whether this athletic apparel, footwear, accessories and equipment provider will be able to deliver a positive earnings surprise in the quarter to be reported.

The company has outperformed the Zacks Consensus Estimate by an average of 19.9% in the trailing four quarters, with a beat delivered in each quarter. 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 49 cents, reflecting year-over year growth of 0.6%. We note that the Zacks Consensus Estimate has been stable in the past 30 days. Also, analysts polled by Zacks expect revenues of $8.6 billion, reflecting a jump of 4.5% from the year-ago quarter.

Factors at Play

NIKE has posted better-than-expected earnings for 19 straight quarters now. The company has been gaining from its robust growth and innovation efforts, which along with reduced expenses fuelled the bottom line in the last reported quarter. Also, management remains confident of growth drivers like efficient supply chain, enhanced sync between the digital and physical experiences, constant innovations and strategic investments. Moreover, the company is focused on its “triple-double” strategy. This strategy is aimed at doubling the cadence and impact of innovation, the speed to market as well as NIKE’s direct connection to consumers in the marketplace. All these factors reflect Nike’s growth prospects.

However, NIKE has underperformed the Zacks categorized Consumer Discretionary sector over the last six months. The company’s shares have moved up 5.1%, compared with the sector’s jump of 11.7%.



While NIKE is adapting itself to consumers shifting preferences toward online shopping, the company has been facing stiff competition from players like Adidas (DE:ADSGN), given the latter’s schedule of new product launches and efforts to redefine brands. Also, mounting competition for Nike’s basketball shoes in North America was a major hindrance for NIKE’s top line in the last quarter. Thus, the company announced plans to tighten supply of new products in North America, in its last quarter results.

Given these factors, soft future orders and the lingering currency headwinds, the company projects sales growth in the mid-single digit range in the fiscal-fourth quarter, slightly short of the growth reported in the third quarter. On a currency neutral basis, it anticipates revenues to increase in the high single-digit range. During the fourth quarter, the company expects to witness high sales growth internationally, including Greater China, Europe and Emerging markets. However, NIKE remains cautious on sales projections for North America. Additionally, gross margin is projected to fall by nearly 150 to 175 bps in the fourth quarter, mainly due to adverse currency movements. SG&A expenses are estimated to remain flat year over year, backed the productivity gains from the ongoing Edit-to-Amplify initiative.

Well, these mixed factors signal us to wait and see if NIKE can keep its splendid earnings surprise streak alive this time around.

What the Zacks Model Unveils?

Our proven model does not conclusively show NIKE 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 49 cents. The combination of NIKE’ Zacks Rank #3 and ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

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:

Darden Restaurants, Inc. (NYSE:DRI) has an Earnings ESP of +1.74% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

McDonald's Corporation (NYSE:MCD) has an Earnings ESP of +4.94% and a Zacks Rank #2.

Philip Morris International Inc (NYSE:PM) has an Earnings ESP of +2.44% and a Zacks Rank #3.

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