Nike (
NKE
) is expected to announce its 3rd quarter fiscal 2011 earnings on
March 17th. We take this opportunity to look at what are some of
the key aspects to look forward to with regards to upcoming
earnings. Nike is the largest global manufacturer of athletic
footwear, apparel and equipment by sales volume, and competes with
Sketchers (
SKX
), Adidas AG (
ADS
), Steven Madden (
SHOO
) and K-Swiss (
KSWS
) in the global footwear market. It sells its products under
several brands including Nike, Nike Golf, Converse, Cole Haan,
Umbro, and Hurley.
Our price estimate for Nike stands at $77.52
, which is about 11% below the current market price.
Stay Tuned for Nike's Gross Margin Outlook
Some of the developments in the global markets have created
uncertainty around Nike's gross margin outlook and the company has
acknowledged these risks. Thus we believe that margin impact will
be one of the key aspects of Nike's upcoming quarterly results that
investors and analysts will eye on. We bring to our readers a brief
recap of the crucial factors that can potentially impact Nike's
profitability.
Rising Input Costs the Culprit
Rising commodity and labor costs have been a concern. Cotton
prices have increased as a result of heavy buying from China. In
addition to this, labor prices have increased in China adding
upward pressure to the cost of production. The devastation of
Pakistan's cotton crop due to floods has led to shortage concerns
and upward pressure on prices as well. Nike is relying more on air
freight shipping in order to create greater flexibility in supply
chain, maintain leaner inventory and meet the rising demand for
some of its products. Air freight shipping is more expensive and
will lead to shipping costs. We discussed this in a recent article
titled
Nike's Air Freighting Raises Questions on Inventory
Management
.
Mitigating Factors to Cost Pressures
Nike's manufacturing facilities are spread across several Asian
countries now so that the risk posed by higher labor costs in one
particular country, like China, is limited as the company can
reallocate production to other countries. The company can also
manage its profit margins by raising prices on select items and by
using a more flexible inventory and supply chain model to respond
to cost pressures and new opportunities as they arise. We discussed
some of the factors in recent articles titled
Nike's Commodity Costs Rising, but Expansion
Opportunities Could Lift Stock
and Nike's Capacity to Raise Prices Can Neutralize Impact of Rising
Input Costs.
We will look for clues on this in the pending earnings release
later this week.
See full estimates for Nike.