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Will NIKE (NKE) Crush Near-Term Hurdles to Beat Q2 Earnings?

We expect NIKE Inc.NKE to beat expectations when it reports second-quarter fiscal 2018 results on Dec 21. In the last quarter, the company delivered a positive earnings surprise of 18.8%.

Moreover, the company has a spectacular positive earnings surprise record for over three years now, delivering positive earnings surprises for 21 straight quarters. For the trailing four quarters, the company has recorded an average positive earnings surprise of 22.1%. Let's see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors' minds now is whether this leading sports apparel retailer will be able to post positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is 39 cents, reflecting year-over year decline of 22.3%. We note that the Zacks Consensus Estimate for the second quarter has been stable in the past 30 days. However, analysts polled by Zacks expect revenues of $8.4 billion, reflecting a jump of 2.5% from the year-ago quarter.

Nike, Inc. Price, Consensus and EPS Surprise

Nike, Inc. Price, Consensus and EPS Surprise | Nike, Inc. Quote

NIKE has outperformed the Consumer Discretionary sector in the last three months. The company's shares have surged 15.7%, compared with the sector's jump of 4.1%.

Factors at Play

NIKE's robust growth and innovation efforts have been reflected in its robust earnings surprise trend. Additionally, persistent growth at international locations and global NIKE Direct business along with solid demand for the NIKE brand has been providing a boost to the top line. Going forward, the company remains confident of growth drivers like efficient supply chain, enhanced sync between the digital and physical experiences, constant innovations and strategic investments, all of which are likely to bolster long-term shareholder value.

While NIKE sees itself well positioned to gain from the rise in digital era, it remains focused on strengthening its leadership position and driving growth through the next phase. To do this, the company remains aggressively focused on its "triple-double" strategy.

Additionally, NIKE has been focused on Consumer Direct Offense plan. Driven by its Triple Double strategy, this restructuring plan focuses on using digital methods for rapid innovation and product development, along with strengthening consumer relations by operating through core regions. This has also aided the company's positive record of earnings surprises in recent quarters.

However, lackluster sales trend in the company's key North American market remains a headwind. Soft sales in North America are attributed to the lackluster product assortments, increased promotions due to growth of e-commerce and intensified competition. Moreover, the company's wholesale business in the region has been impacted due to increased focus on online sales. Moreover, we believe the overall environment is likely to remain promotional in North America, hurting the results in this segment.

Furthermore, the company anticipates near-term results to be impacted by the tough retail environment, which led to a bleak second-quarter view. For fiscal 2018, reported revenues for the fiscal are still anticipated to increase in the mid-single digits. In second-quarter fiscal 2018, the company expects reported revenue in the low-single digit range. The company expects decline in North America and in the Converse segment to be partly mitigated by strength in international business.

What the Zacks Model Unveils?

Our proven model shows that NIKE is likely to beat earnings estimates this quarter. 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. The company has an Earnings ESP of +5.49% as the Most Accurate Estimate of 41 cents is higher than the Zacks Consensus Estimate of 39 cents. This along with the company's Zacks Rank #3 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Other Stocks Poised to Beat Earnings Estimates

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

Costco Wholesale Corp. COST has an Earnings ESP of +1.64% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

McDonald's Corporation MCD has an Earnings ESP of +0.22% and a Zacks Rank #3.

Walgreens Boots Alliance Inc. WBA has an Earnings ESP of +7.24% and a Zacks Rank #3.

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Nike, Inc. (NKE): Free Stock Analysis Report

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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.


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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