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Can Continued Segmental Growth Aid NIKE (NKE) in Q2 Earnings?

Zacks Equity Research

NIKE Inc. NKE is slated to report top and bottom-line numbers for second-quarter fiscal 2020 on Dec 19. Investors continue to be optimistic about the contributions from North America and China regions to the company’s results. Improvements in these segments along with synergies from the Consumer Direct Offense and gains in international and digital businesses are likely to drive the top line in second-quarter fiscal 2020.

The NIKE stock has been displaying a strong momentum with shares gaining 5% in the past month compared with the industry’s 3.1% growth. Additionally, the stock has surged 33.2% year to date, keeping investors’ optimism alive.

NIKE, Inc. Price and EPS Surprise

Overall Earnings & Revenue Expectations

Despite the volatile macroeconomic and geopolitical environment, NIKE expects investments in key capabilities to aid digital transformation and deliver robust growth throughout fiscal 2020. It expects results for the upcoming quarters to be driven by brand recognition, robust innovation pipeline and positive response from Nike Direct and wholesale partners.

For second-quarter fiscal 2020, the company predicts revenue growth in line with the first-quarter fiscal 2020 level. On a currency-neutral basis, it expects strong revenues despite a negative impact of nearly 3 points from foreign currency translations.

Gross margin for the fiscal second quarter is estimated to expand 25 bps, reflecting slightly higher growth than expected for the second half of fiscal 2020. However, the company expects pronounced impacts of the recently enacted tariffs on the gross margin for the fiscal second quarter.

It also expects a high-single digit rise in SG&A expenses. It anticipates an increase of $10-$30 million in other expenses, net of interest expenses. Effective tax rate is expected in the mid-teens range.

The Zacks Consensus Estimate for the company’s earnings in the fiscal second quarter is pegged at 57 cents, indicating growth of 9.6% from the prior-year reported figure.

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