Nike Shares On a Run As Company Prepares to Deliver Q3 Earnings

Athletic apparel maker Nike Inc. reports fiscal Q3 earnings on Thursday after the closing bell. Investors might learn whether it can continue the across-the-board growth it saw in Q2.

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5 min read

For one more hint about how the retail sector is faring, investors might want to consider glancing at athletic apparel giant Nike Inc.’s (NKE) fiscal Q3 earnings, which are scheduled for release after the closing bell Thursday.

Nike is one of the last major companies to report for the recent wave of earnings, when retailers have been showing very mixed results amid changing consumer shopping habits and preferences.

In recent months, it seems not much has been able to slow NKE’s momentum. This could be partly because NKE appears to be riding positive economic drivers behind consumer stocks, especially the mostly booming U.S. jobs scene. NKE’s Q3 report could potentially reveal whether it can achieve the same strong performance as it did last quarter, when it saw growth in every category. 

Investors may have good reason to have high expectations for NKE this quarter after Foot Locker Inc. (FL) crushed Wall Street estimates for Q3, citing in part success with Nike products, including new releases in Jordan and Air Max.

So far this year, NKE is up 17.2%, having quickly brushed off a bit of a stumble after one of its shoes shredded on Duke forward Zion Williamson, who suffered a knee injury during a basketball game as a result. Shares fell more than 1% on the news, but soon resumed their climb. In comparison so far this year, the S&P 500 (SPX) is up about 12%, and the Dow Jones ($DJI) is up about 10%.

Still, after a sell-off late last year, NKE seems to have been underperforming its athletic apparel competitors. Its stock is up about 30% the past 52 weeks, whereas Under Armour (UAA) and Lululemon Athletica (LULU) shares rose 40% and 78%, respectively. Both UAA and LULU beat earnings and revenue estimates in their last quarters, though LULU lowered its guidance for Q4 on softer holiday sales expectations.

As a multinational retailer with several sales channels and aggressive marketing, NKE is exposed to many of the important drivers in the retail sector. It relies both on brick-and-mortar locations as well as online avenues for sales. Its brand is fairly high-end, so when NKE’s business is booming, investors sometimes regard that as a sign that the consumer is spending freely. It has a large presence in China, so its business there may shed some light on how U.S. companies are faring amid ongoing tensions between the U.S. and China over tariffs.

Will Nike See Across-the-Board Growth Again?

The consensus earnings estimate from third-party consensus is $0.64 per share, according to third-party consensus analyst estimates[CA1] . Revenue is projected to increase about 6.5% to $9.57 billion from $8.98 billion last year.

Following the release of its fiscal second quarter results, NKE shares rose about 8% as it beat both earnings and revenue expectations and reported growth in every category. According to NKE, the strongest growth segments last quarter were in footwear and apparel, where it noted double-digit growth in both. It also saw particularly strong online sales growth, including a 30% increase in U.S. online sales over the year prior and a 40% increase on Singles’ Day, China’s largest online shopping day.

Overall last quarter, higher prices appeared to help boost its profits and gross margins. NKE’s net income increased 10% to $847 million, or $0.52 per share. That was above the $0.46 per share Wall Street was expecting, according to third-party estimates. And net sales increased by 10% to $9.37 billion, versus the Street view of $9.18 billion. At the time, company executives said they weren’t seeing any significant impact from the ongoing tensions between the U.S. and China regarding tariffs.

In fact, NKE said it saw significant growth in its China market last quarter, with sales up 26% to $1.5 billion from the year prior. In comparison, North American sales rose 9% to $3.78 billion and sales in Europe, the Middle East and Africa increased 8%.

Moving forward, NKE recently announced it would focus even more on women athletes this year by rolling out new high-tech products and by sponsoring 14 teams in FIFA Women’s World Cup.

 Figure 1: A Leg Up: Over the last six months, Nike (candlestick) has been outperforming the S&P 500 (purple line), and has recovered quickly from its December lows . Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Nike Options Activity

For NKE, the options market has priced in an expected share price move of about 4.3% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Call activity has been higher at the 90 strike while put activity has concentrated at the 87 and 85.50 strikes. The implied volatility sits at the 47th percentile as of Thursday.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

Good Trading,

JJ

@TDAJJKinahan
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