Categories Analysis, Earnings, Other Industries, Retail

Preview: Nike to report first earnings since Kaepernick backlash

Only about a month ago, on Labor Day, Nike (NKE) launched an ad campaign featuring controversial quarterback Colin Kaepernick, as its new face. The 30th anniversary ad campaign was then subject to a lot of backlashes, along with calls to boycott the company. Even President Donald Trump came down heavily on the sports retailer, stating that the campaign sends a “terrible message.”

On Tuesday after the closing bell, Nike will once again be subject to public scrutiny, though this time strictly from a business point of view. As the company reports first quarter earnings, it will give a clearer picture of how the boycott calls have impacted its sales.

Meanwhile, initial reports and surveys indicate that most people had a favorable response towards the campaign, which came with the tagline – “Believe in something. Even if it means sacrificing everything.” Also, NKE stock has gained almost 5% since the launch of the campaign, raising its total valuation by about $6 billion.

In its September quarter, which is cyclically a strong one for the company, Nike is expected to post earnings of 62 cents per share on revenue of $9.88 billion, up over 9%. The results should be boosted by a mix of various factors including growth across key markets including China, Africa, the Middle East and Europe.

On the other hand, the trade war situation with China, where it manufactures various models of apparels and shoes, is likely to pull down the bullish sentiments. The tariffs are definitely going to show up as a burden in Nike’s balance sheet in the coming quarters.

Nike slips on the ad campaign featuring Colin Kaepernick

Nike’s knowledge of what its customers – primarily millennials and Generation X – exactly want has helped it stay out of the retail crisis. The company has also been constantly innovating and bringing out products to meet customer needs, winning wider brand loyalty in the process. During the previous quarter, about 80% of its topline growth was contributed by innovations in React and Air VaporMax platforms.

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Though Nike has been setting strong targets so far, the outlook provided this quarter will probably act as the stock stimulus. The stock, which has rallied 33% so far this year, was on Monday trading around the 12-month price target of $84.58.

Nike has been posting favorable margins over the recent quarters, but investors will be looking for more evidence that the stock is running on strong fundamentals. And market watchers feel the chances are, the company will present a few.

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