The “athleisure” trend appears to be slowing dying out as consumers shift back toward more traditional casualwear — and it’s having a negative impact on sport clothing manufacturers.
So far, we’ve seen Skechers USA Inc. (NYSE:SKX) and Under Armour Inc (NYSE:UA) miss top-line earnings expectations and Lululemon Athletica Inc. (NASDAQ:LULU) plunge on weak third-quarter guidance. It should come as no surprise, then, that Nike stock traders are nervous heading into Nike Inc’s (NYSE:NKE) first-quarter report.
Nike is slated to enter the earnings confessional after the close on Tuesday next week. Wall Street is anticipating a year-over-year decline of 19.6% in earnings, with analysts targeting a profit of 56 cents per share compared to 67 cents per share a year ago. Revenue, meanwhile, is seen rising 5.5% to $8.88 billion.
Optimism is still the name of the game within the brokerage community for Nike stock. According to EarningsWhisper.com, the whisper number for Nike’s first-quarter earnings arrives 2 cents higher at 58 cents per share.
Furthermore, Thomson/First Call reports that 20 of the 30 analysts following Nike stock rate the shares a “buy” or better, while the consensus 12-month price target of $65.59 represents an 18.4% premium to yesterday’s close.
Outside the brokerage bunch, however, the situation is beginning to turn bearish. While the 25 million shorted Nike stock shares only account for about 1.89% of the total float, short interest surged 22% for NKE during the most recent reporting period.
Click to Enlarge Elsewhere, the September/October put/call ratio currently rests at 0.93, with puts nearly in parity with calls among options set to expire in the next two months. Furthermore, this ratio rises to 1.02 for the weekly September 30 series, indicating a more bearish slant for Nike stock among options most affected by next week’s earnings report.
Overall, weekly September 30 series implieds for Nike stock are pricing in a post-earnings move of about 4.5%. This places the upper bound near $57.75, while the lower bound lies at $52.75. From a technical perspective, the upper bound lies well short of overhead resistance at NKE’s 200-day moving average, while the lower bound pushes Nike stock toward its July lows.
2 Trades for Nike Stock
Put Spread: Weak price action and rising short interest don’t offer up a positive sentiment outlook for Nike stock heading into next week’s quarterly report. For those traders looking to join the bears in the options pits, an Oct $54/$55 bear put spread offers plenty of potential. At last check, this spread was offered at 39 cents, or $39 per pair of contracts.
Breakeven lies at $54.61, while a maximum profit of 61 cents, or $61 per pair of contracts, is possible if Nike stock closes at or below $54 when October options expire.
Call Spread: For those traders looking to side with the brokerage community ahead of Nike’s earnings, an Oct $55/$57.50 bull call spread stands a fair chance of turning a profit. At last check, this spread was offered at $1.03, or $103 per pair of contracts.
Breakeven lies at $56.03, while a maximum profit of $1.48, or $148 per pair of contracts, is possible if Nike stock closes at or above $57.50 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
