Nike Inc: Earnings Are Set to Leave Investors Flat-Flooted (NKE)

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Nike Inc (NKE) has been having a dismal year and it’s unlikely that Tuesday’s quarterly earnings report will offer relief for anyone holding NKE stock.

Nike NYSE:NKE nke 185Shares are down 17% for the year-to-date for a number of reasons, none of which are going to be dispensed within a single filing or conference call. Besides, as Wells Fargo analysts point out, via WSJ.com, Nike has a tendency to trade lower after an earnings release immediately preceding a major sporting event.

With the summer olympics on tap, it will be easy for Wall Street to once again underestimate Nike’s costs for advertising and marketing.

But there are broader issues at play here as well. The athletic wear category has plenty of growth left in it, but it’s doing so at slower and slower rates. Nike in particular is suffering from slower sales of apparel.

At the same time, Nike is facing the stiffest competition it’s seen in ages. Adidas AG (ADR) (ADDYY) and Under Armour Inc (UA) are coming on strong as they seek to take Nike’s market shares.

Again, per WSJ.com, Morgan Stanley says Adidas’s U.S. footwear sales grew 26% year-over-year in April and May while Nike’s declined by 4%. As for Under Armour, the Stephen Curry basketball shoes have taken Nike to the market-share hole to the tune of 8 percentage points.

A Down Quarter for NKE

To makes matter worse, earnings per share are actually projected to decline in the latest quarter. Analysts on average expect Nike earnings to fall to 48 cents a share from 49 cents a share a year ago. Revenue is forecast to grow 6.4% to $8.28 billion.

However, for the full fiscal year (NKE is reporting its fiscal fourth quarter), NKE revenue is projected to rise just 6%. In the prior fiscal year it rose 10%.

As evidenced by the expected drop in EPS, this should be a cleanup quarter for NKE. It headed into the period with some inventory bloat and the only way to clear something like that is to cut prices and take the hit to margins.

If the company made headway reducing inventory as it gears up for the summer olympics, analysts will applaud. If not? Look out below.

Bottom Line on NKE Stock

The dreaded “D” word of deceleration has investors spooked. That’s why NKE stock is close to levels last seen in August 2015. Under Armour has proven itself a migraine for NKE stock holders. Brexit and its implications for a stronger dollar aren’t doing an international powerhouse like Nike any favors either.

Nike stock isn’t particularly expensive for its long-term growth forecast, but it’s hard to call it a bargain. That said, with a relative strength index of 31, NKE is close to being oversold on a technical basis.

Perhaps NKE will surprise to the upside when it discloses its orders for future delivery. That’s the number the market really cares about. But that’s more of an argument for a trade than an investment at these levels.

Given the uncertainty heading into fourth-quarter earnings, the safest course is to hold off on committing fresh capital to this name.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/nike-nke-stock-earnings/.

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