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Nike Earnings Could Boil Down to Home Vs. Away Results

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September 24, 2015

Nike (NKE), the athletic-apparel powerhouse, could be a big player in the global economic story that’s driving broad stock trading. That’s because its fiscal Q1 results—due after the closing bell today—could reveal how the double whammies of strong dollar headwinds and China’s economic uncertainty can impact performance.

NKE results are projected to grow in single digits, with per-share profit anticipated at $1.19 on revenue of $8.2 billion, according to analysts surveyed by Thomson Reuters . That’s a 9.2% EPS advance on a 3% topline gain from the year-ago comparison attributed mostly to better sales of higher-margin products. But, given Nike’s earnings track record, results could top expectations, say industry analysts.

Home Court Advantage?

Nike’s Q4 results impressed the markets. Revenue rose 4.8% but would have marked a currency-adjusted 13% jump otherwise. Some 40% of its revenues are reported to be homegrown with roughly 23% derived from Europe and only 10% from China. But China—before all the economic headaches and roiled markets—represented the biggest regional sales growth area for NKE, at 18% to $3.07 billion in Q4. How might the government’s subsequent crisis intervention in China impact Nike’s results (and possibly other sports and leisure goods producers) from the mainland as well as Hong Kong, Macau, and Taiwan?

Still, Nike’s results in the U.S., where it commands a 60%-plus market share, could trump China’s pullback. Basketball footwear runs the roost, supplying some $4 billion in revenue to the firm’s topline sales in fiscal 2015. That, analysts say, implies 21% year-over-year category sales growth.

Like most equities, NKE’s stock price was rocked with the market’s volatility, hit hardest in late August with a near-12% drop (figure 1). 

nike-stock-chart

FIGURE 1: REBOUND?

Nike (NKE) shares are shown in a one-year view. The stock fell some 12% in a volatile August. Since then, it’s been recovering and back on an upward trajectory, rising better than 43% on a year-over-year basis. Chart source: TD Ameritrade’s thinkorswim® platform. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Active Shares

NKE shares are historically actively traded among retail investors. The options market appears to be pricing in a 3.8% move in either direction for NKE's underlying shares surrounding the earnings release.

NKE's implied volatility is running at about 81%, elevated for the year so far compared to its historical norm.

As for recent options activity, buying picked up in the weekly 115 calls and 116 calls. Buyers also emerged of late for the October 115 calls, while demand for September 122 calls was noticeable over the past few weeks. Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time.