What to Expect When Nike, Inc. Reports Earnings

From steady top- and bottom-line growth to hints for the year ahead, here's what investors in the athletic shoe and apparel juggernaut should be watching next week.

Steve Symington
Steve Symington
Jun 22, 2016 at 2:56PM
Consumer Goods

Image source: The Motley Fool.

Nike Inc. (NYSE:NKE) is set to release fiscal fourth-quarter 2016 results next Tuesday, June 28, 2016 after the market close. With shares down around 12% year to date as of this writing, despite its largely solid fiscal Q3 report in March, you can bet the market will be closely watching what the athletic shoe and sportswear behemoth has to say.

So what, exactly, should investors be looking for this time around?

First, keeping in mind Nike regularly collects more than half its revenue abroad, three months ago it revealed futures for NIKE brand footwear and apparel (scheduled for delivery from March through July 2016) climbed 12% year over year on a reported basis (17% excluding currencies), including double-digit gains across all geographies despite the influence of the strong dollar.

After combining that growth with its performance through the first three quarters of the fiscal year -- where revenue increased a modest 6% year over year (14% excluding currencies) -- Nike reiterated its guidance for both fiscal Q4 and full fiscal-year 2016 revenue growth in the mid-single-digit percent range. Nike also called for gross margin for the full year to expand by roughly 50 basis points, as pressure from foreign currencies and Nike's efforts to clear a recent glut in inventory should only partially offset its ability to command higher average selling prices and drive growth in its high-margin direct-to-consumer (DTC) business. In the fiscal fourth quarter, gross margin should be flat to slightly higher than the 46.2% Nike achieved during the same year-ago period.

Drilling further into the drivers of Nike's business, during last quarter's call CEO Mark Parker insisted Nike has "delivered robust and balanced growth across [its] expansive, powerful portfolio." Further, Parker elaborated that this strength should "continue into Q4 and beyond" with broad-based momentum across Nike's footwear, apparel, and equipment segments.

But I might add that this momentum in the coming quarters will arrive with two temporary caveats.

First, keep in mind Nike's Converse subsidiary is in a state of transition, so may continue to see lumpy results on a quarterly basis. More specifically, note almost a year ago Nike management warned Converse's year-over-year growth would be "uneven" as it shifts the brand to a more direct operating model abroad. That uneven growth most recently manifested last quarter as Converse saw revenue decline 9% year over year (or 5% at constant currency), primarily due to a shift in timing of shipments out of fiscal Q4 2015 and into fiscal Q3 2015. According to CFO Andy Campion, that shift was "to ensure Converse's smooth transition to a new ERP system." As a result, investors should take any perceived weakness at Converse with a grain of salt until it begins to enjoy more steady comps.

At the same time, listen for any updates to Nike's initial fiscal year 2017 guidance issued last quarter. Though Nike was still in the planning stages of fiscal year 2017 as of last quarter's report, that guidance called for revenue to grow in the high-single- to low-double-digit percentage range on a reported basis, and for earnings per share to increase in the low teens. Regarding the latter, Nike warned earnings growth will be more heavily weighted toward the second half of fiscal year 2017 due to a combination of more pronounced currency headwinds early in the year, as well as planned demand creation investments centering around the Summer Olympics in Rio and this year's European Football Championships.

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Nonetheless, given Nike's strength in past quarters despite the uncertain macroeconomic environment, it seems safe to assume the company should continue to demonstrate relative stability as it strives to sustain its modest global growth over the long term.