Categories Analysis, Consumer, Earnings

Nike bets on favorable pricing, DTC prowess to drive Q1 growth

Sneaker maker Nike, Inc. (NYSE: NKE) is scheduled to report its first-quarter 2020 results on September 24 at 4:15 pm. The stock, which has consistently set records for long, traded at a new high this week. Currently, the outlook is quite bullish and the majority of analysts have given the stock buy rating, with an average price target of about $95.

Nike (NKE) Q4 2019 profit declines, despite 4% revenue growth

The company’s performance has been positive across the portfolio so far this year, reflecting its rapidly growing digital capabilities and the management’s efforts to improve customer experience through initiatives like Consumer Direct Offense.

Time to Buy?

The company is expected to have maintained the growth momentum in the most recent quarter, making the stock an investment option worth considering, which also justifies the positive rating. The stock has a history of making strong gains whenever the company publishes positive quarterly results.

Related: Under Armour Q2 loss narrows; stock falls on revenue miss

It is widely expected that Nike’s profit will rise 5% to $0.70 per share in the August quarter on revenues of $10.44 billion, which represents a 5% annual growth. The fact that the prior-year quarter was exceptionally good for the company makes the comparison a bit tough.

Footwear to Lead

Like in the past, the top-line growth will be driven by the footwear segment, with contributions from the hugely popular Air Max 270 and Vapormax brands, while earnings stand to benefit from favorable pricing. The rapidly expanding direct-to-customer channel continues to be a key growth driver, accounting for about a third of the total quarterly sales on average. The DTC segment has helped in easing the pressure on margins.

Meanwhile, trade-related uncertainties and unfavorable exchange rates might weigh on the results. Also, margins could be hit by an increase in expenses. Though Converse is expected to continue the sluggish performance, the recent portfolio expansion with new launches might come as a relief to the brand in the to-be-reported quarter.

Q4 Outcome

For the fourth quarter, Nike reported a 6% drop in earnings to $0.62 per share, reflecting higher expenses and tax which was partially offset by an increase in selling prices. The bottom line, however, topped the Street view, triggering a stock rally. Though revenues increased 4% to $10.2 billion, they missed the estimates.

Also see: NIKE Q4 2019 Earnings Conference Call Transcript

Nike’s stock has gained 19% since the beginning of 2019, outperforming the sector and the S&P 500 index. In the past twelve months, it moved up about 3%.

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