Earnings preview: Innovation, digital push to drive Nike’s Q3 growth

After surviving the challenges posed by adverse market conditions, sneaker maker Nike (NKE) will be publishing its third-quarter earnings on March 21 after the regular trading hours. It is widely expected that revenues will grow 6.5% year-over-year to $9.57 billion, with strong contributions from the footwear segment. Analysts are looking for earnings of $0.64 per share, down from $0.68 per share reported in the prior-year quarter.

The results will be positively impacted by the ongoing recovery in the North American operations and the company’s digital transformation initiatives, which has been giving tough competition to rivals Adidas and Under Armour (UAA).

The general recovery of the sportswear market, catalyzed by the steady growth in the sales of leading apparel brands, bodes well for Nike which has been expanding its direct-to-customer channel aggressively. It needs to be noted that the company’s wholesale tie-ups with retailers like Foot Locker (FL), Nordstrom (JWN) and Dick’s Sporting Goods (DKS) are working well.

In the second quarter, double-digit growth in the sales of apparels and footwear drove up earnings by 13% annually to $0.52 per share, while revenues jumped 10% to $9.4 billion. The management has been betting on the company’s expanding supply chain and innovations in the product pipeline –  with focus on off-the-court models – to improve performance in the current fiscal year.Under Armour last month reported a 2% increase in fourth-quarter revenues to $1.4 billion, which resulted in flat earnings. A further slump in the Americas was more than offset by the positive outcome in other markets. Meanwhile, North America continues to be a challenging market for most sportswear companies, due to the growing competition and people’s fast-changing shopping habits.

Related: Nike Q2 2019 Earnings Conference Call Transcript

Nike was in news for the wrong reasons recently, after Duke basketball player Zion Williamson’s sneaker exploded during a game, causing minor injuries to the player. However, the incident had minimal impact on the stock, which bounced back quickly from the initial dip that followed the report.

After falling to a six-month low towards the end of last year, the stock regained strength at the beginning of 2019 and reached a record high this month. It has gained 30% in the past twelve months, outperforming the S&P 500 index.

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