Nike Earnings Preview: Why Analysts Are Cutting Profit Forecasts

Wall Street is eyeing an ever-expanding list of cases to work with the athletic gear maker, Nike Inc. After the call, it is scheduled to report fiscal first quarter results on Thursday.

A stronger dollar, inflation, Nike’s NKE,
Cultural relevance among competitors, the impact of China’s COVID-19 lockdowns, and the state of Nike’s supply chain are just a few.

watch out: The dollar is crushing rival currencies. Where things are heading.

With the U.S. economy growing relatively well and the dollar appreciating against other currencies, some analysts are cutting expectations for Nike for the quarter or the year.

Analysts at Credit Suisse said in a research note Friday that they were lowering their first-quarter earnings estimate to 90 cents per share from 95 cents to 90 cents, and lowered their full-year estimate to $3.60 from $3.70.

The break was mainly due to the background of foreign exchange, the analysts said. But also the pressure on gross margins is “worse than expected,” Nike said, as they found shoes and other items sitting on warehouse shelves for long periods of time due to supply chain hangups.

Nike’s supply chains have improved in recent weeks, however, the analysts said, citing unnamed “US contacts”. The unsold product is trending steadily, and Nike says it looks like it’s having a “strong” back-to-school season in the US.

Here’s what to expect:

Revenues Analysts polled by FactSet expect Nike to post adjusted earnings of 92 cents a share, marking the company’s fourth straight quarter of revenue growth. That compares to $1.16 a share in the previous session.

Income: Analysts polled by FactSet expected sales of $12.28 billion, compared with $12.2 billion a year ago.

Share Price: Nike shares are hovering at lows not seen since July 2020.

Year-over-year, Nike’s shares are down 45 percent. In comparison, the S&P 500 index SPX;
In the same period it decreased by 23%.

What else to expect: Over the years, Nike has been trying to rely on foreign retailers for sales and direct sales to consumers, either in its own stores or online.

Those consumers, for now, are still responding to price hikes, some analysts say. Jefferies analysts, citing their own analysis of online data, found that consumer demand for sneakers increased in August from July, helped by the popularity of the Dunk sneaker line, which helped Nike manage to capture market share.

Still, analysts lowered their price target on Nike from $155 to $130, a 34% increase from Friday’s prices. However, they maintained their buy rating, saying they have long-term potential.

“From our perspective, (Nike) appears to be winning the ‘sneaker war,’ and we maintain our (long-term buy) rating based on the company’s history of innovation and cultural relevance,” Jefferies analysts said.

However, in the short term, the land is much worse, he said.

“We believe consensus estimates for FX headwinds, inflation on the global consumer and general margin pressure are not fully realized as the promotional environment increases,” analysts said.

B. of A. on Friday shaved a few cents off its full-year earnings-per-share target as analysts worried about the stronger dollar. “There’s more to watch than China,” he headlined his Friday memo.

However, China remains a concern for Nike investors. The company suffered a downturn in China last year after concerns over reports of forced labor in the Xinjiang region. The region accounts for a large share of the global cotton supply and has been accused of human rights abuses by the West.

“The demand picture in China remains cloudy,” BA analysts said in a note. “The (cotton) boycotts and the Covid lockdowns have hampered sales, creating a lot of inventory in the athletic channel. We expect (the first half of Nike’s fiscal year) to be characterized by heavy promotional activity to a fair amount of inventory levels.

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