Nike Earnings: Will North American Growth Stay on Track?

Nike reports earnings after market close on Tuesday, Sept. 25, with its stock just shy of all-time highs. Here’s a look at what might be expected from the athletic giant’s results.

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Nike (NKE) reports fiscal first-quarter earnings after market close on Tuesday, September 25. The stock is trading at all-time highs heading into the report, its 34.8% year-to-date return easily beating the S&P 500’s (SPX) 8.7% increase.

For the quarter, NKE is expected to report adjusted EPS of $0.62 on revenue of $9.93 billion, according to third-party consensus analyst estimates. In the same quarter last year, adjusted EPS came in at $0.57 on $9.07 billion in revenue. 

The rise in the U.S. dollar is one factor that analysts are expecting to weigh on this quarter’s report because about 60% of the company’s is international. The Bloomberg Dollar Index, which measures the U.S. dollar against a basket of global currencies, has mostly been between $94 and $96 during NKE’s fiscal first quarter, whereas it was around the $90 level during the fiscal fourth quarter last year. 

North America and China

The stock had dipped briefly after the company put itself in the spotlight with its recent advertising campaign and has been dealing with political controversy from that as well.  

Outside of that recent news, the North America region and China have been two of the main focuses among analysts in recent quarters. 

After several years of slowing growth and year-over-year sales declines in North America, NKE returned that division to positive growth and management said its goal is to deliver mid-single-digit growth over the next five years. When NKE last reported,  North America revenue increased 3% year-over-year to $3.88 billion. For all of fiscal 2018, that segment’s sales declined 2% to $14.86 billion. 

Management has indicated that its direct-to-consumer channels, as well as launching new, innovative products are two of the ways they plan to drive growth in North America 

In Q4 last year, NKE said the Greater China region was growing at almost twice the rate as any other regions. Sales in the region increased 35% year-over-year in fiscal Q4 last year, generating $1.47 billion in sales. The ongoing back-and-forth on trade between the U.S. and China is another area some analysts have expressed concerns, as both apparel and sporting goods were among the goods that have had tariffs placed on imports.

Nike 2018 Stock Chart. Outside of a few dips here and there, NKE has steadily climbed so far in 2018. With the stock close to all-time highs, investor and analyst expectations are on the high end ahead of tomorrow’s report. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Nike Options Trading Activity

Options traders have priced in a 5% stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was on the high end at the 81st percentile as of this morning. 

In short-term trading at the September 28 weekly expiration, most of the recent trading on both the call and put side has been right around the money. The 85-strike call at this expiration, as well as many of the upcoming weekly and monthly expirations, has seen heavier volume.  

Recent trading has been lighter on the put side across expirations. There has been a smattering of activity across strikes, with concentration at the 85-strike put across many of the upcoming weekly and monthly expirations. 

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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