20 Sep

Why Nike’s Q1 Results May Not Help Its Stock

  • Nike is set to report its fiscal 2020 first-quarter results on September 24.
  • The company faces tough year-over-year comparisons.
  • Foreign exchange and growth investments may have hurt Nike’s margins and limited its EPS growth.

Nike (NKE) is set to announce its fiscal 2020 first-quarter results after markets close on September 24. We expect Nike’s sales and earnings to improve, though any growth may be minimal as the company faces tough YoY (year-over-year) comparisons.

In last year’s first quarter, Nike’s top line jumped 10%, and its EPS grew about 18%. The company expects its revenue growth to be flat or slightly higher sequentially in this year’s first quarter.

In fiscal 2019’s fourth quarter, Nike’s revenue rose 4% and beat analysts’ estimate. However, its earnings missed their estimate, falling 10% YoY.

Currency volatility could also impact Nike’s top-line growth in the first quarter. Management’s mid-single-digit percentage growth guidance accounts for foreign exchange.

We foresee continued growth across all of the company’s operating segments, and expect NIKE Digital to boost its North American and EMEA (Europe, the Middle East, and Africa) revenue. Meanwhile, wholesale partners’ growth and market share gains should further support its revenue. The company expects to sustain its momentum in China, with growth across product lines.

We foresee Nike’s higher sales and lower outstanding share count boosting its EPS. However, its innovation and brand campaign investments, higher tax rate, and tough YoY comparisons could limit its EPS growth.

What Wall Street projects for Nike’s Q1

In fiscal 2020’s first quarter, analysts expect Nike’s revenue to grow about 5% YoY to $10.44 billion. The company expects its gross margins to register flat-to-25-basis-point growth, supported by NIKE Direct and full-price sales.

However, currency exchange, higher product costs, and supply chain investments could limit Nike’s gross margin growth. We believe investments in innovation, brand campaigns, digital transformation, and wages could hurt its operating margin, and in turn, it EPS. Its higher effective tax rate could remain a drag.

However, Nike’s EPS could improve YoY in the first quarter, thanks to its lower share count. Wall Street expects them to grow about 4% YoY to $0.70.

As of yesterday, Nike stock had risen about 18.3% year-to-date and 9% in the last month. Based on analysts’ average growth expectations and its recent uptrend, Nike stock seems unlikely to rise much after the company’s earnings announcement.

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