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Nike Earnings Tuesday After The Bell: Can NKE Break Out?

Daniel Laboe

America’s favorite athletic footwear and apparel company is getting ready to release its August quarter results. Nike’s NKE fiscal 2020 Q1 results are expected after the bell Tuesday, September 24th.  Tuesday’s report could illustrate this firm’s strongest financial results since the company’s inception. NKE shares have been trading right in line with the S&P 500 all year. This earnings report could bust the shares out of this market mirroring trend.

NKE has had some big moves from the past 10 quarterly reports, affecting the share price by 4.7% on average (4 up, 6 down). Zacks Consensus Estimates consist of an EPS of $0.71 on sales of $10.45 billion, which would represent growth of 6% and 5% respectively.

It appears that NKE’s up/downside surprises don’t impact the stock price as much as management guidance and announcements.

August quarter earnings are historically Nike's most robust quarter due to back to school shopping. Can it continue this narrative?

The Business

Nike is the largest shoe manufacturer in the world (Adidas ADDYY on its heels) with over $26 billion coming from footwear, and another $11.55 billion from its apparel segment.

This company has been attempting to ride the athleisure cultural wave that Lululemon LULU has created. This new fashion trend has been swiftly spreading across the world and benefiting Nike’s global operations.  

The majority of Nike’s sales are done overseas, with only 43% of the company’s revenue being originated in North America. Nike’s largest growth region in 2019 was Greater China unexpectedly. It appears that the trade war has not impacted Nike’s business overseas quite yet. Protectionism is still a concern moving forward, but I would’ve expected this to have already been impacting the company’s financials.

NIKE Direct and wholesale are the two channels in which the firm sells its products. NIKE direct includes sales at its Nike branded stores as well as its digital commerce platform. Nike has been building out its NIKE direct channel, which now makes up 32% of its sales and continues to grow.

Digital commerce makes up just less than 10% of Nike’s sales, but it is one of the most significant growth drivers in the business right now. This segment grew over 35% in fiscal 2019 compared to the company as a whole, which only grew its topline by 7.5%.

Over the last 5 years, Nike has demonstrated a compounded annual growth rate (CAGR) of 8.6% over the previous 8 years. The company is expected to illustrate 7.8% sales growth with an EPS expansion of 16% in this upcoming 2020 fiscal year.

Valuation

NKE is being valued at 28.3x forward P/E, which is on the highest end of the firm’s 3-year trend and above the industries 24.5x. This is because of the Nike brand premium, a brand that brings investors to the table just because they like the product and are familiar with the name. This stocks brand premium creates more risk for investors, but its 1% dividend provides a small cushion.

Take Away

Nike is an icon of athletic footwear & apparel around the world. Their hold on the global markets only seems to tighten as overseas growth remains strong. Even with Lululemon’s rise to power in the athleisure space, Nike has been able to hold its own in the apparel segment with its price advantage.

In this upcoming earnings Tuesday after market close focus on management guidance, and sentiment as well as any rousing announcements as these will likely have the most substantial impact on NKE’s price action.

 

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lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
NIKE, Inc. (NKE) : Free Stock Analysis Report
 
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