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NIKE (NKE) Poised to Beat on Q1 Earnings on Strong Business


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NIKE Inc. NKE is slated to release first-quarter fiscal 2019 results on Sep 25. The question lingering in investors' minds is whether this leading sports apparel retailer will be able to post positive earnings surprise in the quarter to be reported.

In the last-reported quarter, the company delivered a positive earnings surprise of nearly 7.8%. Moreover, it maintained a spectacular earnings record for more than three years, delivering positive earnings surprises for 24 straight quarters. In the trailing four quarters, the company recorded an average positive earnings surprise of 18.8%. Let's see how things are shaping up prior to this announcement.

NIKE, Inc. Price and EPS Surprise

NIKE, Inc. Price and EPS Surprise | NIKE, Inc. Quote

What to Expect?

The Zacks Consensus Estimate for the quarter under review is 62 cents, reflecting a year-over-year increase of 8.8%. We note that the Zacks Consensus Estimate for the fiscal first quarter has moved up in the last 30 days.

Moreover, NIKE outperformed the industry in the past month, indicating a positive sentiment ahead of the earnings release. Its shares have increased 3.8% compared with 0.2% growth recorded by the industry . Additionally, the company's shares have witnessed growth of 14.1% in the last three months.



Factors at Play

Gains from NIKE's robust growth and innovation efforts, alongside its strategy of acquiring sponsorships for various sporting events across the globe, are well reflected in its robust sales and earnings surprise trend. The company's performance graph is influenced by strength in international business and the global NIKE Direct business. Strong progress on Consumer Direct Offense through innovation and focus on direct-to-customer are key drivers. Moreover, the return of the North America business to growth in the fourth quarter of fiscal 2018 has built investors' confidence on the stock.

NIKE's North America business returned to healthy and sustainable growth in fourth-quarter fiscal 2018, putting up 3% revenue growth that was backed by innovative platforms, strong digital growth, sustained momentum in Sportswear segment and growth across Apparel business. Notably, NIKE Digital grew more than 30% in North America, contributing primarily to growth by reshaping consumer experiences at retail, both owned and partnered. The company's locations that leveraged digital connections with customers drove more than two-thirds of growth in North America.

The trend reversal is a testament to NIKE's previously announced target of returning North America to mid-single-digit growth in the next five years. The company expects the momentum witnessed in North America to continue throughout fiscal 2019 and beyond.

Driven by these positives, NIKE raised its revenue guidance for fiscal 2019. It now expects revenue growth in a high-single digit compared with its initial guidance of mid- to high-single-digit growth. The raised view is mainly driven by the increasing consumer demand for NIKE. For first-quarter fiscal 2019, it expects revenue growth to be in line with the fiscal 2019 forecast.

The Zacks Consensus Estimate for revenues is $9.9 billion, reflecting an increase of 8.9% from the year-ago quarter. Moreover, revenue estimates for North America is $4,047 million, reflecting 3.1% gain from the year-ago quarter.

However, the company's higher SG&A expenses continued to be a headwind. SG&A expenses rose 17% due to higher operating overheads and demand creation expenses. For fiscal 2019, the company expects SG&A expenses to increase nearly at par with revenue growth but it is not targeting SG&A leverage. Increased investments in digital experiences and capabilities, product innovation, and brand marketing should result in higher SG&A expenses. Moreover, SG&A expenses will be higher in the first half due to increased investments, owing to key consumer and sports events like the World Cup.

While higher S&A expenses are likely to pose concerns in the short term, the above-mentioned strategies clearly profess that NIKE has significant growth potential in the days ahead.

What the Zacks Model Unveils

Our proven model shows that NIKE is likely to beat earnings estimates this quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

NIKE has an Earnings ESP of +3.19% and a Zacks Rank #3, which makes us reasonably confident of an earnings beat in the fiscal first quarter.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Rent-A-Center, Inc. RCII currently has an Earnings ESP of +9.43% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Amazon.com Inc. AMZN has an Earnings ESP of +8.93% and a Zacks Rank #2.

Tractor Supply Company TSCO has an Earnings ESP of +0.49% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: AMZN , RCII , TSCO , NKE



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