Categories Analysis, Consumer

Earnings Preview: Nike (NKE) likely to report mixed results for Q4

The market will be looking for updates on the company's strategy for the upcoming Olympics, which is an important event for it

The performance of Nike, Inc. (NYSE: NKE) has not been very impressive in recent years, with a lack of innovation and changing consumer behavior dragging its sales. While the sneaker giant aggressively expands its direct-to-customer business, DTC sales remained flat and digital sales slightly declined in the latest quarter reversing the recent trend. The company will be reporting fourth-quarter results on Thursday after the closing bell.

The slowdown has negatively impacted investor confidence, and Nike’s stock is struggling to recover from a losing streak. Since peaking in 2021, the stock has shown a steady downtrend though there were some short-lived rebounds. In recent years, the stock underperformed the broad market quite often. However, long-term investors would likely see the low stock price as an investment opportunity.

Estimates

Nike’s fourth-quarter report is slated for release on Thursday, June 27, at 4:15 pm ET. It is estimated that revenues remained broadly unchanged at $12.85 billion in the final three months of fiscal 2024. Meanwhile, the company’s management predicts a modest increase in Q4 revenues and a 1% growth for the full fiscal year. On average, analysts forecast earnings of $0.83 per share for Q4, compared to $0.66 per share in the same quarter of the prior year.

While expanding its DTC business in recent years, the company lost focus on wholesale distribution channels. That in turn weighed on the top-line performance, and growing competition from new players added to the sales slump. There are concerns that customers are losing interest because Nike is not launching new products as frequently as it did in the past, thereby losing market share to competitors.

Road Ahead

On the positive side, the athletic wear market is steadily expanding, creating room for multiple players to operate successfully. By bringing proper innovation into the portfolio and leveraging catalysts like the Olympics, with the latest edition of the sporting extravaganza scheduled to begin in Paris next month, Nike should be able to tackle competition and maintain its dominance in the sportswear market.

“Overall, inventory remains healthy, with units down double digits versus the prior year. And, as we look forward, we see the launch of Air Max Dn, Euro Champs ’24, and the Paris Olympics as opportunities to create near-term brand momentum despite a challenging consumer backdrop. In greater China, Q3 revenue grew 6%, in line with our revised expectations that we shared at the end of last quarter. Nike Direct declined 1%, with Nike stores growing 6% and Nike Digital declining 13%,” Nike CFO Matt Friend said at the Q3 earnings call.

In Recovery Mode

For the third quarter, the company reported lower profit and flat revenues. Earnings decreased to $1.17 billion or $0.77 per share in Q3 from $1.24 billion or $0.79 per share in the year-ago quarter. Meanwhile, revenues were unchanged year-over-year at $12.43 billion. NIKE Direct revenue came in at $5.4 billion, slightly higher on a reported and currency-neutral basis. Over the past several years, the company’s quarterly earnings mostly beat estimates, including in the February quarter.  

Nike’s stock, which is currently trading below the twelve-month average, was down 2% on Tuesday afternoon. It has lost around 12% in the past six months.

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