North America

Earnings Preview: NIKE, Inc. Q1 2018 (NKE)

By: Craig Bowles

Overview

Nike Corporation (NKE) is slated to report 1Q 2018 earnings after the close on Tuesday, September 26th. The earnings release is expected at approximately 4:15 p.m. ET with a 5:00 p.m. conference call webcast available at Nike Investor Relations. The athletic footwear and apparel maker’s brand alone is valued at $10.7 billion, making it the most valuable brand among sports businesses. Nike is an S&P 500 component and was added to the Dow Industrial Average in 2013, so results have an increased market-moving impact. Nike stock split two-for-one on December 24th, 2015.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): The Street estimate is $0.48 (range $0.44 to $0.57) (Source: Yahoo! Finance). Consensus was $0.65 three months ago.
  • Revenues: Analysts expect an increase of 0.3% y/y to $9.09 bln (range $8.94 bln to $9.21 bln).
  • Future Orders: Last quarter’s -2% y/y rate had an ex-forex rate of 0%. North America scheduled deliveries June-November were down 10% compared to last year.
  • Price/Earnings of 21.3 compares to a 5-year average of 26.0; Price/Book of 7.1 compares to a 5-year average of 6.3; Price/Sales of 2.6 compares to a 5-year average of 2.7; Price/Cash Flow of 24.9 compares to a 5-year average of 25.9. Dividend yield of 1.3% compares to a 5-year average of 1.2%.
  • Analyst view Nike with 19 (21 last qtr) Buy ratings, 15 Hold, and 3 (2 last qtr) Sell, according to MarketBeat.com.
  • Nike insiders sold 435,756 shares over the last three months but bought a net 4,224,300 shares in the past year. (source: NASDAQ.com) The company has a four-year $12 billion share repurchase program that runs through Q32020 following the previous $8 billion and $5 billion buyback programs that also ran four years.
  • Nike results could impact other athletic footwear companies, such as Finish Line (FINL), Shoe Carnival (SCVL), Steven Madden (SHOO), Foot Locker (FL), DICK’S Sporting Goods (DKS), Wolverine World Wide (WWW) and Skechers (SKX). Performance apparel makers Under Armour (UA) and lululemon athletica (LULU) could be impacted, as well.
  • Nike shares have a 1-day average price change on earnings of 5.21%. Options are pricing in an implied move of 5.74% off earnings.

Recent News

  • 09/19: Susquehanna downgraded Nike to Neutral from Positive citing an oversupply of basketball product in North America which will pressure sales and margins. A near-term lack of innovation in select categories is hurting performance worse than anticipated, according to a post on StreetInsider.com.
  • 09/14: Despite low analyst expectations for Nike’s quarter, improvements to the company’s supply chain process should improve its margins, according to a post on Fool.com.
  • 09/13: Deutsche Bank maintained a Buy rating on Nike despite cutting cut estimates citing expectations for a stronger 2018 based on new platforms, the NBA deal, and World Cup, according to a post on Barron’s.com.
  • 08/21: Jefferies downgraded Nike to Hold from Buy citing a premium valuation in the face of competitive dynamics shifting to Adidas, according to a post on Barron’s.com.
  • 07/26: Nike cut executive salaries following weak U.S. sales. Nike’s CEO, Mark Parker, is taking a 71% cut this year. He will make $13.9 million compared to the $47.6 million he made in 2016, according to a post on CNN.com.
  • 06/29: Nike confirmed that it will start selling a limited selection directly on Amazon to gain more control in how Amazon presents its merchandise. Nike also announced a project to sell directly though Facebook’s Instagram.

Technical Review

Nike made an all-time high of $68.19 on December 23, 2015 and has struggled since. That was about the time CNBC did a story on a high school investing genius who was pyramiding NKE stock. Seasonality has disappointed again this year as spring and summer had been favorable. Balance area support is the low $50s where the stock is currently trading. (Chart courtesy of StockCharts.com)

Summary

Nike’s plan to cut 1400 of the global workforce and eliminate a quarter of its shoe styles has been followed with cutting the CEO’s nearly $50 million pay. (CEO pay is no longer 10-20 times a worker’s pay but macro problems are made up of micro problems which this certainly is.) You wonder why the pay cut wasn’t the first step in cost cutting and is this the kind of thinking you want to invest in. The dollar strength and weakness appears to have been less of an issue than competition led by Adidas’ improving North American momentum. Nike’s slowing future orders led by North America turned into declines and is an obvious worry for future revenue. Analysts are less bullish on Nike in the short-term. Optimists cite the summer of 2018’s World Cup and the increased four-year stock buyback plan. Nike beat estimates by an average of 12c the past four quarters. Estimize consensus for an EPS of $0.52 on revenue of $9.126 bln compares to analyst consensus of $0.48 on revenue of $9.09 bln.

 

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