Investors and purely market observers alike await the fiscal first-quarter earnings report for athletic apparel giant Nike (NYSE:NKE), set to release later this afternoon. Ahead of the disclosure, NKE stock finds itself down a bit more than 3.5%, reflecting broader pessimism.
According to Barron’s assessment of multiple analysts’ opinions, “the footwear giant has too much working against it—from foreign exchange headwinds and excess inventory to slowing consumer demand in key markets.”
Wall Street expects the company to post an adjusted net income of $1.5 billion, or 92 cents a share. This metric is down 19.8% from one year ago. Also, analysts forecast that sales will come in at $12.3 billion, up a bit from the $12.2 billion generated in the year-ago quarter.
Below are three factors that investors should consider ahead of one of the biggest disclosures this year.
Sentiment Split for NKE Stock
From a topical view, the bearish angle for NKE stock appears to make the most intuitive sense. For one thing, the main equity indices have all printed red ink. In fact, at the time of writing, the three majors have lost at least 20% on a year-to-date basis.
Moreover, investors remain concerned about Nike’s ability to overcome macroeconomic challenges, particularly inflation. As Barron’s pointed out, in the previous (sequential) quarter, “revenue from the greater China region fell about 20%, while Nike’s North America business was off 5%.”
At the same time, not every analyst views NKE stock so pessimistically. “Nike products generally continue to sell through at high prices with fewer promotions in North America and Europe. The pricing data also suggests Nike’s inventory levels are mostly well-controlled,” UBS analyst Jay Sole said, according to a Reuters report.
Hard Times Call for Creative Measures
As Trefis mentioned in a Forbes publication, supply chain constraints and a slower-than-expected recovery in China fundamentally challenge NKE stock. At the same time, the research firm remains generally optimistic about the underlying apparel giant.
Despite headwinds, Nike enjoys robust demand from consumers. As well, the Covid-19 pandemic “accelerated Nike’s efforts to become more self-sufficient by operating more of its own stores and expanding its own online shopping presence. That said, 40% of its revenue now comes from sales made directly to consumers (Nike Direct) rather than via wholesaling.”
As well, Trefis stated that fourth quarter 2022 online sales were up a large 18% on a currency-neutral basis. Therefore, it’s not entirely out of the question for Nike to pull off a positive earnings surprise. That might help swing the needle for NKE stock.
Nike Represents a Vital Bellwether
Finally, Nike represents a vital bellwether for the consumer economy. Throughout this year, various fundamental forces ranging from monetary policy to geopolitical flashpoints wreaked havoc on the dollar. Under such circumstances, arguably the intuitive instinct is to batten down the hatches.
Still, should Nike be able to pull off a positive surprise, it may provide hope for embattled investors. Essentially, a strong outing against heavy macroeconomic pressure points implies that Nike’s brand features inelastic demand at the baseline. That is to say, irrespective of consumer economy headwinds, a minimum threshold of shoppers will still open their wallets for Nike products.
However, with high-profile failures earlier this year, the stakes are high for NKE stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.