Nike Earnings Preview: What Might Be Expected for Fiscal Q3?

Nike Inc. (NKE) reports fiscal Q3 earnings on Thursday, March 22 after market close. What might be expected for its Q3 fiscal 2018 report?

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(NOTE TO READERS: JJ Kinahan is traveling today, so the following is a guest earnings column written by Shawn Cruz, Manager, Trader Strategy at TD Ameritrade).

Nike (NKE) is scheduled to report fiscal Q3 earnings after market close on Thursday, Mar. 22.

For fiscal Q3, NKE is expected to report adjusted earnings per share (EPS) of $0.52 on revenue of $8.8 billion, according to third-party consensus analyst estimates. Looking at the same quarter last year, adjusted EPS came in at $0.68 on revenue of $8.4 billion.

NKE has beat earnings estimates in each of the past eight quarters, although top-line results have been more mixed. After beating top-line estimates in fiscal Q2, NKE reaffirmed its full-year revenue guidance and raised its gross margin outlook amid growth in its more profitable, direct channels, and management’s expectations for product launches coming up in fiscal Q4.

One of the common concerns expressed by many analysts with Nike’s business has been slowing sales in North America, combined with gross margin contraction in the region. Management has attributed recent revenue growth to strength in its international business and direct-to-consumer channels, offsetting weakness in its North American wholesale business.   

In its international business, China has been one of the stronger areas of growth, which management said is being led by digital sales on Nike.com and Alibaba’s Tmall, one of the NKE’s major partners in China. NKE reported that revenue in China was up 15% on a currency-neutral basis in fiscal Q2.

On top of its international focus, NKE has been looking at new partnerships to reach consumers. On last quarter’s earnings call, CEO Mark Parker said the company would test a pilot this spring on Stitch Fix (SFIX), an online personal styling service, and expand its partnership with Amazon (AMZN) that it started in mid-2017.

NKE’s strategy “is to partner with platforms that advance our brand, as well as our business through presentation, pricing and consumer data to support our membership efforts,” according to Parker. Some analysts have expressed concerns that NKE needs to be careful as it expands partnerships to ensure it’s not cannibalizing sales in its direct-to-consumer and strategic-wholesale channels.

Beyond the results, another topic that might come up on tomorrow’s call is NKE’s recent executive turnover. The company announced last week that Mark Parker will remain as Chairman, President and CEO beyond 2020, and Elliot Hill will assume a new role as President of Consumer and Marketplace, overseeing Nike Direct, marketing, geographies and global sales.

Nike Trading Activity

After a tough 2016 as the worst-performing stock in the Dow ($DJI), NKE made a comeback in 2017 and ended the year up 20.33%. The stock has pulled back a bit from the all-time high of $70.25 it hit on Feb. 27. During yesterday’s session, the stock climbed above its 50-day moving average and closed at $66.80.

Around the upcoming earnings release, options traders have priced in about a 5% potential stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 77th percentile as of this morning, and open interest has been leaning more towards the put side.

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.

Nike stock chart since its last earnings report

NIKE SINCE ITS LAST REPORT.

Nike (NKE) has experienced some bigger swings, along with the broader indexes, over the past few months. The stock has seen some support around the $62.50-level, bouncing off of it twice in early February. Despite the recent pullbacks, shares are still up quite a bit from the low of  $50.35 hit in mid-October. Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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