Earnings Preview: Nike Inc.

Zacks

Nike Inc. (NKE), a global leader in sports equipment and apparel is expected to report its fourth quarter and fiscal 2012 financial results after the market closes on Thursday, June 28, 2012.

The Zacks Consensus Estimate for the quarter is $1.37 per share. This represents a year-over-year growth of approximately 10.5%. For the quarter under review, revenue is expected to be $6,497 million, according to the Zacks Consensus Estimate.

For fiscal 2012, the Zacks Consensus Estimate stands at $4.94 per share while revenue is expected to be $24,170 million.

Third Quarter Synopsis

Nike posted earnings of $1.20 per share in the third quarter of 2012, beating the Zacks Consensus Estimate of $1.16 and rising 11.1% from the year-ago earnings of $1.08. Management hinted that a robust demand scenario for Nike brands coupled with selling and administrative expense leverage and lower share count boosted its bottom line.

Nike's total revenue grew 15.1% to $5,846 million from $5,079 million in the prior-year quarter, primarily driven by growth in all key categories of NIKE Brand, and in geographic regions excluding Japan. Revenue for the quarter surpassed the Zacks Consensus Estimate of $5,829 million. During the quarter, all brands including Converse, Hurley, NIKE Golf and Umbro, reflected growth from last year, while Haan remained flat.

Zacks Consensus

The analysts following the stock expect Nike to post fourth-quarter 2012 earnings of $1.37 a share, higher than $1.24 delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between $1.24 and $1.43 a share.

For fiscal 2012, the Zacks Consensus Estimate stands at $4.94 per share, higher than the year-ago fiscal earnings of $4.39. The current Zacks Consensus Estimate ranges between $4.80 and $5.02 per share.

Agreement of Estimate

For the fourth quarter of fiscal 2012, of the 15 analysts covering the stock, 3 analysts revised their estimates downward, while none have revised estimates in the upward direction, over the last 7 and 30 days.

For full fiscal 2012, 4 out of 17 analysts covering the stock revised their estimate downward, while one analyst revised in the opposite direction, in the last 7 and 30 days.

Magnitude of Estimate Revisions

Despite a downward estimate revision, the magnitude of revisions for the company depicts a neutral outlook for the upcoming fourth quarter and fiscal 2012. Over the last 7 and 30 days, estimates for the quarter and fiscal 2012 have remained unchanged at $1.37 and $4.94 per share, respectively.

Surprise History

We noted that the company has been consistently surpassing the Zacks Consensus Estimate for the past four quarters in the range of 3.1% to 12.4%.The average remained at 6.5%, indicating that Nike has surpassed the Zacks Consensus Estimate by that measure in the trailing four quarters.

Conclusion

In an attempt to expand its global reach and market share, Nike is aggressively expanding its operations in the emerging markets while focusing on direct-to-consumer business and other brands, which augur well for future operating performance. Moreover, the company’s near-to-debt free balance sheet offers financial flexibility to drive future growth.

However, sluggish discretionary spending and intense competition amid rapidly changing customer preferences will continue to weigh upon the company’s future operating performance. Nike faces intense competition in both domestic and international markets from local as well as established players, such as Adidas AG (including Reebok), PVH Corporation (PVH) and Brown Shoe Company Inc. (BWS).

Currently, Nike maintains a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, we retain a long-term Neutral recommendation on the stock.

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