Nike Is Expected to Continue Near-Perfect String of Earnings Beats

(Bloomberg) -- Nike Inc. has topped quarterly earnings estimates 93% of the time over the past 11 years, supporting a stock rally that’s more than tripled the market since 2008. Wall Street analysts expect the iconic sneaker and apparel maker to continue that streak when it reports third-quarter results post-market Thursday.

Commentary from retail partners including Foot Locker Inc. and Dick’s Sporting Goods point to strong Nike footwear and clothing sales in the latest quarter, according to analysts. The company’s largest regional sales contributor, North America, faces easy year-over-year comparisons, and several new product launches in the February quarter bode well, too.

Meanwhile, in nearly a dozen interviews since the start of the year, footwear and apparel industry leaders tell research firm Third Bridge that Nike has outperformed, that the company is doing an excellent job innovating on the production side, via new products, brands and ideas, and on the demand side through innovative approaches in direct-to-consumer, brand-owned retail and third-party retailers.

Here’s what sell-side analysts have to say about the forthcoming quarterly earnings release:

Telsey Advisory, Cristina Fernandez

  • Expects recent new launches to “scale in 4QF19 and carry the momentum into FY20”
  • NKE has also increased marketing to women, “an important growth driver (market size 1.5x men’s, but only 25% of Nike sales)”
  • Inventories in U.S. remain clean, driving more full-price selling
  • FX remains headwind, limiting expense leverage on better sales
  • Sales strength and slowing growth at Adidas support Nike’s premium valuation
  • Rates buy, price target $95

Susquehanna, Sam Poser

  • “Ever improving brand messaging, product and execution should result in a 3Q19 beat and an upward guidance revision”
  • Industry contacts suggest that momentum in NKE’s business, across geographies, channels, and categories, is “incredibly strong and is continuing to build”
  • NKE’s digital business to continues to be the “predominate revenue growth driver across all geographies”
  • NKE is outfitting 14 of the 24 World Cup women’s national teams, “which will provide a great venue to showcase the Nike brand”
  • Rates positive, price target $100

What Bloomberg Intelligence Says

Nike’s sales momentum in North America likely persisted in fiscal 3Q, given the 9.7% jump in same-store sales at its largest retail partner, Foot Locker. Comments on Nike’s sales by other sporting-goods retailers also point to acceleration, making the fiscal 2019 outlook of high-single-digit growth quite achievable.
--Chen Grazutis, Apparel Analyst
Click here to read the research.

Canaccord Genuity, Camilo Lyon

  • Well positioned to beat 3Q consensus EPS, with North American sales showing sequential acceleration
  • Sales of Jordan shoe should accelerate from 2Q amid strengthening sell-throughs on the back of a sharper launch calendar; apparel likely continued its accelerated growth, driven by fleece, jackets, and NBA apparel (led by Lakers)
  • China momentum continued as macro concerns don’t seem to have affected demand for Nike product
  • Gross margin expansion should be driven by stronger apparel sales and a higher mix of full-price footwear selling
  • Rates buy, price target $96

Barclays, Matthew McClintock

  • “Tough to poke holes in a story where the largest retail partner is delivering almost 10% comps”
  • NKE has upside opportunity to revenue, but more reluctant to expect meaningful gross margin upside; as such, expects initial guide for FY20 to be in-line with long-term algorithm
  • Rates overweight, price target $100

Baird, Jonathan Komp

  • Third-quarter report should feature “multiple positives including building strength in North America plus international momentum amid robust product/digital drivers”
  • Sees upside to EPS consensus; consensus assumes 3Q EBIT only ~24.5% of full-year despite contributing >25% each of the past 9 years; sees slight upward bias to FY2019 consensus
  • International is important to sustaining current multiple; unexpected shock here would “pose risk”; NKE has “easy” North America year-over-year comparisons in 3Q
  • Initial FY2020 commentary likely reflects continued brand momentum; expects forward guidance for revenue growth of at least high-single-digits and gross margin improvement, but SG&A investment levels “still a wild card”
  • Rates neutral, price target $87 on valuation

Just the Numbers

  • 3Q adjusted EPS estimate 65c (range 58-75c)
  • 3Q revenue estimate $9.65b ($9.37b-$10.36b)
    • North America revenue estimate $3.85b (Consensus Metrix, avg of 16)
    • EMEA revenue estimate $2.40b (CM, avg of 16)
    • Greater China revenue estimate $1.53b (CM, avg of 16)
    • AsiaPac & LatAm revenue estimate $1.29b (CM, avg of 16)
  • 3Q gross margin estimate 44.7% (44.5%-45.8%)
  • FY19 adjusted EPS estimate $2.67 ($2.55-$3.00)
  • FY19 revenue estimate $39.31b ($38.6b-$40.1b)
  • FY19 capex estimate $1.3b ($1.17b-$1.44b)
  • FY19 gross margin estimate 44.6% vs 43.8% last year; forecast about 70bps expansion y/y

DATA

  • NKE implied 1-day share move following earnings 5.6%: Bloomberg data
  • Shares rose after 6 of prior 12 earnings
  • NKE has 25 buys, 10 holds, 1 sell, average price target $90: Bloomberg data
  • Short interest 0.4% of float, 52-week high 2.7% in June, low 0.2% in Oct.: Markit data
  • NKE +32% in past year vs SPX +5%

TIMING

  • Earnings release 4:15pm today
  • Conference call 5pm, (866) 602-1302

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