Categories AlphaGraphs, Earnings

Earnings Preview: Nike looks like an investment option worth trying

This week Nike (NKE) improved its position in the Dow Jones Industrial Average and clinched the second position, largely reflecting the upbeat sentiment in the market. The sneaker maker is widely expected to report above-consensus earnings Thursday, when it is slated to announce the fourth quarter and full-year results after the markets close.

Typically, the trend is positive for Nike in the run-up to the back-to-school season, and it is not different this year. Factors that make the stock desirable are Nike’s distinctive product portfolio that is well positioned to take on arch-rival Adidas, impressive Average Unit Retail (AUR) and the resultant uptick in margins, which often absorb the effects of supply crunch.

On average, analysts polled by a leading market research firm expects the Beaverton, Oregon-based Nike to report earnings of $0.64 per share in the fourth quarter on revenues of $9.41 billion, representing an increase from the $0.60 per share earnings and $8.68 billion revenue recorded in the fourth quarter of 2017.

Nike Q3 profit beats expectations
Nike Q3 2018 Earnings Infographic

Meanwhile, there is a concern in the investment circles over Nike’s weakening foothold in the North American market, amidst competition from Adidas and Puma. Also, the fast-changing retail environment and rapid e-commerce adoption are additional challenges that demand special attention. Those are the main areas needs to be checked before investing in the stock, especially considering the company’s rough ride since the beginning of the year.

Said that, being able to push the Air Max and Jordan brands successfully, defying the threat posed by Adidas to a large extent, Nike is in an advantageous position as far as revenues are concerned. And, its increasing focus on the direct-to-consumer business model complements the product innovation.

In Q4, Nike will benefit from its distinctive product portfolio impressive average unit retail and the uptick in margins

Taking a cue from the positive elements, most analysts are recommending a ‘BUY’, even as expectations keep growing as the big day nears. So, should one take the plunge before the fourth quarter results are released? Well, that may be debatable, but many of those who are yet to make up their mind on adding Nike to their investment portfolio might find the 10% growth projection for the stock irresistible.

The global trend in the sports and athletic wear sector indicates that Nike is broadening its presence in China and Europe, while firming up its position in North America largely unmoved by the big inroads being made by Adidas in the local market.

In the past, Nike has shown a trend of popping after positive earnings results and maintaining the momentum in the following days. The stock, which hovers near the three-year high it reached last month, ended Tuesday’s regular trading session slightly higher.

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