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Nike Earnings: The Trends to Watch

Nike (NYSE: NKE) has some big questions to answer for investors in a few days. The athletic footwear and apparel giant's shares have underperformed the market so far in 2022, but it has a chance to shift that sour narrative with its fiscal third-quarter results, set for Monday, March 21.

Let's take a look at the main expectations around that key operating update.

A child trying on new shoes.

Image source: Getty Images.

Looking at sales

The big question is where sales growth trends will land after the company reported a disappointing flat result for Q2, which ran through late November. The stakes are higher for this announcement as it covers the critical holiday shopping season.

Nike's Q2 results were pulled down by its China division, while the U.S. and European markets grew more quickly. Watch for a modest rebound in China and Europe as supply-chain issues eased late in the quarter. Nike is predicting that the second half of its fiscal year will show a mid-single-digit growth pace, but that forecast could change depending on growth in these key markets.

We learned from Foot Locker that Nike is taking a more aggressive move toward marketing directly to its customers rather than selling through retailing partners. Watch for CEO John Donahoe to stress that e-commerce platform, which carries higher profitability over wholesale sales. Those sales were up 9% last quarter over the year-ago period.

Cash flow and profits

Nike's profitability rose last quarter as higher selling prices, along with the shift toward e-commerce selling, offset rising expenses. We'll find out on Monday whether those positive trends were enough to keep boosting earnings even as inflation accelerated in late 2021 and early 2022.

These financial wins are helping Nike direct more resources toward its massive marketing budget while still sending cash to shareholders through dividends and stock repurchases. Watch for those spending channels to lift investors' returns this quarter.

The big questions on 2022

Wall Street has a few big worries heading into the report. There are questions about the pace of the rebound in China as well as concerns about slowing sales throughout Europe, for example.

It's unclear how much extra risk the business is taking on by walking away from its wholesale selling strategy that leaned on partners like Foot Locker. And Nike likely struggled with supply-chain challenges that pressured sales during the all-important holiday selling period in late 2021.

Those issues don't threaten the long-term bullish thesis that sees Nike continuing to dominate the global landscape around athletic apparel and athleisure. There's a clear path toward higher profit margins ahead as the company builds more direct relationships with its fans and boosts prices.

Yet management is likely to sound a cautious note about the final quarter of the fiscal year due to several big but temporary headwinds like geopolitical instability and inflation. Shareholders shouldn't let that short-term cloudiness keep them away from this strong growth business, though.

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Demitri Kalogeropoulos owns Nike. The Motley Fool owns and recommends Nike. The Motley Fool recommends Foot Locker. The Motley Fool has a disclosure policy.

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

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