Nike Inc. Earnings: Will Fears of Weaker Growth Come True?

On Thursday, Nike (NYSE: NKE  ) will release its quarterly report, and investors have become nervous about the athletic-apparel giant's ability to keep growing as fast as it did in the past. Even with key events like the World Cup to help drive future results, Nike faces tough competition from Under Armour (NYSE: UA  ) and Adidas (NASDAQOTH: ADDYY  ) on multiple fronts, and other up-and-coming retail specialists have seen the strategy of carving out niches in the athletic space as a way to succeed even against Nike's past dominance.

For decades, Nike has built itself into a colossus of athletic prowess, with its omnipresent brand penetrating every major sport and plenty of less well-known ones as well. But having fought hard to attain supremacy in the space, Nike now has to fight even harder to keep it, as a new generation of athletes has turned to Under Armour and other newer participants in the space to come up with more innovative products that appeal more to a younger demographic. Can Nike keep growing fast enough to satisfy shareholders? Let's take an early look at what's been happening with Nike over the past quarter and what we're likely to see in its report.


Source: Nike.

Stats on Nike

Analyst EPS Estimate

$0.75

Change From Year-Ago EPS

(1.3%)

Revenue Estimate

$7.34 billion

Change From Year-Ago Revenue

9.6%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Nike earnings win the race?
In recent months, investors have largely held steady in their views on Nike earnings, cutting next fiscal year's estimates by just a single penny per share. The stock remains at almost exactly the same level at which it traded in late March, having bounced back from disappointment early in the quarter.

Much of that disappointment came when Nike announced its February-quarter earnings. The quarter's actual results were reasonably good, with revenue climbing by 13%, and earnings per share posting 4% growth that came in better than most investors had expected. But despite strong growth in North America and Europe, emerging-market results weren't as impressive, especially because of currency-related issues. Even more importantly, Nike reined in its revenue forecasts, and poor signs of future activity in China raised bigger concerns about how well the company can take advantage of the huge potential market there.

Slowing growth wouldn't necessarily be such a big problem for Nike if its competitors were suffering from the same problems. For its part, Adidas has talked about its risk from the situation in Ukraine as potentially holding back sales in Russia, even though the company has put together growth of more than 30% annually in revenue over the past five years. Under Armour has also been able to post much faster growth rates than Nike, using its agility to go after the most lucrative segments of the broader athletic market and making a name for itself as an alternative to Nike domestically.

Source: Nike.

Still, Nike's overall strategy has raised some confusion. In April, many investors interpreted layoffs in its FuelBand division as a signal that Nike was killing off the ground-breaking wearable technology entirely. Yet this month, Nike released an Android app for the device, suggesting that it's still committed at least to some extent to the FuelBand rather than ceding the space to Apple and other potential makers of more potent wearable computing gear.

One thing is sure, though: Nike will keep seeking out top talent to endorse its products. Last month, reports surfaced that the company is talking with the English Premier League soccer team Manchester United to create a sponsorship deal. Given the high profile of Man U, a Nike deal could be yet another way the company gets its claws into a game that Adidas has traditionally ruled.

In the Nike earnings report, watch to see how the run-up to the World Cup affects the company's overall net income. Even if the stock takes a short-term hit, long-term investors should take a close look to see if Nike shares make even more sense after Thursday's report.

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