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Buy Soaring Nike Stock Before Earnings Despite Coronavirus Setbacks?

Benjamin Rains

Nike NKE stock has outpaced the S&P 500’s climb from the market’s March 23 lows, up nearly 60%. The sportswear giant’s stores are up and running again in China, as they slowly start to reopen elsewhere.

Now let’s see what investors should expect from Nike’s fourth quarter fiscal 2020 financial results that are due out on Thursday, June 25.

Nike & the Pandemic

Nike joined Apple AAPL, Lululemon LULU, and many other retailers when it closed in mid-March its stores around the world in an effort to combat the spread of the coronavirus. Nike’s stores remained closed far longer than initially anticipated, as was the case with all retailers deemed non-essential.

The company did release on May 14 a statement updating Wall Street about its store reopenings.

Nike said at the time that “100% of NIKE-owned stores and over 95% of partner stores in Greater China and South Korea are open, with some still operating with reduced hours. In these markets, retail traffic trends are progressing and while physical store traffic remains below prior year levels this is largely offset by higher conversion rates and continued strong digital demand.”

Despite some of the positives in China, Nike said at the time that “product shipments to wholesale customers have slowed resulting in significantly lower wholesale revenue and higher inventory. We continue to expect this to have a material impact on our NIKE Direct and wholesale operations in North America, EMEA and APLA in the fourth quarter.”

As of May 14, only 5% of its stores in North America were open, but Nike has slowly started to reopen stores outside of China and South Korea since then.

 

 

 

 

 

 

 

 

Outlook

Nike’s revenue jumped 5% last quarter, with digital sales up 36%. However, these results captured the three-month period ended on February 29, which means they didn’t include hardly any coronavirus impact outside of China.

With this in mind, athleisure rival Lululemon reported its first full-pandemic quarterly results last week. LULU’s sales plummeted 17%, after they climbed 20% in Q4. Yet, Lululemon stock remains near its recent all-time highs and up over 30% in 2020.

Looking ahead, our Zacks estimates call for Nike’s Q4 fiscal 2020 revenue to tumble 23% from the year-ago period to come in at $7.84 billion. Meanwhile, its adjusted quarterly earnings are projected to sink 82.3% to hit $0.11 per share. On top of that, NKE’s Q4 consensus earnings estimate has fallen by 50% in the last 60 days and 32% in the last 30.

 

 

 

 

 

 

 

 

 

Bottom Line  

Nike’s recent negative earnings revision activity helps it earn a Zacks Rank #4 (Sell) right now. The company is also part of our Shoes and Retail Apparel industry that sits in the bottom 2% of our more than 250 Zacks industries.

Therefore, investors might not want to bet on a strong post-earnings climb from Nike, especially since the stock already hit new all-time highs in early June. Still, longer-term investors might want to consider the dividend-paying sportswear giant that’s more influential than ever.  

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