What Should the Owners of Nike Stock Look for When NKE Reports Its Q1 Results?

Nike's growth is expected to slow on many fronts

Nike (NYSE: NKE )is set to report its fiscal first-quarter 2020 financial results after the closing bell tomorrow. The sportswear powerhouse has seen its shares slip slightly over the last six months. But Nike stock has still slightly outperformed the Apparel Market’s 4.5% downturn.

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However, Nike rival Adidas  (OTC: ADDYY ) and scorching-hot Lululemon (NASDAQ: LULU) have crushed Nike stock in the past 12 months. With this in mind, let’s see what investors should expect from Nike’s upcoming quarterly results.

Nike Stock: What You Need to Know

Nike, like everyone else in retail from Target (NYSE: TGT) to Gap (NYSE: GPS), has spent the last several years bolstering its digital and direct-to-consumer push in the Amazon (NASDAQ: AMZN) age. NKE’s innovations have paid off, unlike Macy’s (NYSE:M) and other department stores’ efforts. Nike has rolled out multiple apps and increased its already massive presence across social media, where people now shop directly.

The company has also improved its supply chain and put RFID tags into products, along with other digital-focused moves. More recently, Nike purchased “retail predictive analytics and demand sensing” firm Celect as part of its larger Consumer Direct Offense strategy. NKE CEO Mark Parker and other Nike executives now project that Nike’s digital division will make up 30% of the company’s total business by 2023, compared to roughly 15% this year.

On top of that, Nike has remained at the forefront of big-time sports around the world, from soccer and basketball to the quickly-expanding e-sports phenomenon. Nike has, in recent years, jumped further into the world of fashion through collaborations that help NKE remain as powerful as ever, from shoes to streetwear. And Nike hasn’t forsaken brick-and-mortar stores. Instead, NKE has remodeled and modernized its stores and has committed to remain a staple in global cultural hubs from New York to Tokyo.

Despite Nike’s continued strength, Adidas has grown in popularity around the world over the last five-plus years, and in North America in particular. Meanwhile, up-and-coming  lululemon has pushed into the athleisure market in a big way, inspiring newcomers such as Outdoor Voices to chase consumers in the growing market.

 

 

 

Nike’s Q1 Revenue Outlook

Analysts, on average, expect Nike’s Q1 revenues to jump 5% year-over-year to $10.45 billion,. That would be above the fourth quarter’s 4% growth, but fall below Q3’s 7%, Q2’s 9.6%, and the 9.7% of last year’s Q1. Investors should note that roughly 60% of Nike’s sales take place outside of North America, with around 15% to 20% coming from Greater China.

Therefore, currency fluctuations can impact its revenue. That impact can become even more exaggerated when the U.S. dollar is strong, as it is right now. For instance, Nike’s full-year 2019 sales jumped 7%, but it climbed 11% excluding currency changes.

North America & China

Our Key Company Metric estimates call for the sportswear firm’s North American revenue to climb roughly 4.9% from $4.145 billion YoY to hit $4.349 billion. That would fall short of Q4’s 7% growth in the region, which accounts for roughly 40% of  the company’s total revenue.

Nike’s sales in Greater China are projected to pop from $1.379 billion in last year’s Q1 to $1.552 billion, which would be a 12.5% jump. But that would be slower growth than last quarter’s 16% surge.

2020 & Beyond

Peeking further ahead, analysts, on average, expect Nike’s fiscal 2020 sales to pop 7.8% to $42.17 billion, with 2021 expected to come in 8.4% higher at $45.70 billion. Both of these estimates represent larger growth than Nike has posted in any of the last four years.

Earnings Trends

At the bottom end of the income statement, Nike’s adjusted Q1 EPS figure is expected to climb 5.9% to 71 cents per share. That would blow away Q4’s 10% decline, which also saw Nike fall short of quarterly earnings estimates for the first time in years.

More importantly, Nike’s fiscal 2020 EPS is projected to climb 16.5%. NKE’s fiscal 2021 EPS figure is projected to climb 18.1% higher than our 2020 projection. Despite Nike’s solid overall earnings outlook, we can see that the company’s bottom-line estimates have fallen dramatically over the last 90 days.

 

 

 

The Bottom Line on Nike Stock

Along with all of the metrics we have discussed, Wall Street wants to see Nike’s e-commerce growth continue. Investors must also pay close attention to any trade war-related updates heading into the vital holiday shopping period.

Nike is a Zacks Rank #3 (Hold) right now. Nike stock slipped 0.93% Friday to hit $86.86 per share, roughly $3 off its 52-week high of $90.00. NKE is one of nine total S&P 500 members set to post its quarterly results next week (also read: The Q3 2019 Earnings Season Gets Underway).

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report

The Gap, Inc. (GPS): Free Stock Analysis Report

lululemon athletica inc. (LULU): Free Stock Analysis Report

Target Corporation (TGT): Free Stock Analysis Report

Macy’s, Inc. (M): Free Stock Analysis Report

NIKE, Inc. (NKE): Free Stock Analysis Report

Adidas AG (ADDYY): Free Stock Analysis Report

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Article printed from InvestorPlace Media, https://investorplace.com/2019/09/how-will-nikes-q1-earnings-affect-nike-stock-north-america-china-and-more/.

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