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Nike’s First Quarter: Tough Comps Could Limit Growth

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  • Nike is set to announce its Q1 earnings after markets close today.
  • Tough year-over-year comparisons and currency headwinds could limit Nike’s earnings growth in the first quarter.

Nike is set to announce its first-quarter earnings after markets close today. The company faces tough YoY (year-over-year) comps in the first quarter, which could limit its sales and earnings growth. However, Nike’s bottom line could improve sequentially. Its bottom line fell in fiscal 2019’s fourth quarter.

In the first quarter, analysts expect Nike’s revenue to grow about 5% to $10.44 billion. They expect its adjusted EPS to grow 4.5% to $0.70.

Nike expects its sales growth to be in line with or slightly above its fourth-quarter top-line growth of 4%. On a currency-neutral basis, Nike foresees its revenue growing by a high-single-digit percentage. However, it estimates foreign exchange could impact its top-line growth by about 4%.

Nike expects its gross margin to stay flat or increase by 25 basis points in the first quarter, driven by growth in NIKE Direct and full-price sales. However, management forecasts currency headwinds pressuring margins by 50–70 basis points.

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Nike’s bottom line could improve YoY, driven by its lower outstanding share count. However, tough comparisons could keep its growth low. Currency volatility and innovation, supply chain, digital, and brand campaign investments could slow its EPS growth. Nike’s higher effective tax rate could also impact its first-quarter EPS.

Broad-based growth in Nike’s first quarter

We expect Nike’s top line to grow across all geographies. NIKE Digital could continue to drive its North American and EMEA (Europe, the Middle East, and Africa) revenue. Benefits from strategic wholesale partners should further support sales. In China, we believe Nike will sustain its momentum and report robust sales growth across all product lines.

On a constant-currency basis, the company’s North American, EMEA, and Greater China revenue rose 8%, 9%, and 22% respectively, in the fourth quarter. As of yesterday, Nike stock had risen 18.3% year-to-date.

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