Nike (NYSE:NKE) has seen its business surge lately thanks to the combination of healthier inventory levels and robust demand for its newest product releases across the footwear and sports apparel niches. Yet the company's last earnings report contained signs of a potential slowdown as revenue growth slipped in the key U.S. market.
That stumble might just be the noise associated with typical short-term sales volatility, or it could be part of a new unfavorable trend for the business. That's a key reason investors will pay close attention to what Nike says about its latest operating trends when the company posts its fiscal fourth-quarter results on Thursday, June 27. Here are three things to watch.
1. Are growth trends stalling at home?
Nike announced double-digit sales growth in the previous quarter to extend its winning streak over rivals like Under Armour (NYSE: UA) (NYSE: UAA). However, sales gains slowed to 7% in the U.S. after having accelerated in each of the prior two quarters, causing many investors to question its growth outlook.
For its part, management expressed no concerns about demand. Instead, it said in late March that healthy online sales and excitement around its latest product launches show that the business is as strong as ever.
Investors will get a chance to judge that optimism against the retailer's actual results on Thursday. As long as sales gains land somewhere in the high single-digit range in the U.S., and higher in places like China, there will be no reason to doubt Nike's growth targets.
2. Are costs under control?
Most investors who follow the stock expect to see earnings decline this quarter as Nike directs more cash toward improving its supply chain and investing in growth initiatives like e-commerce. That's not necessarily bad for the business. In fact, executives believe their ability to outspend rivals is a key competitive advantage. CFO Andy Campion said last year, "Nike's unrivaled scale and resources afford us the ability to overindex on investment in differentiating capabilities while still delivering expanding profitability."
Shareholders will learn whether Nike achieved that balance on Thursday. Success would show up in a modest uptick in gross profit margin, indicating the company is able to pass along higher prices to customers and cash in on its innovation efforts.
3. Is there any change to the long-term outlook?
Thanks to its packed calendar of new product releases and healthy pace of retailer orders, Nike had some clarity about the start of fiscal 2020 as far back as late March. At that time, management said it believed it could stay within the ambitious annual growth targets -- calling for high single-digit revenue growth and rising gross profit margin -- outlined back in late 2017.
CEO Mark Parker and his team now have the benefit of another three months of fresh market data that will inform their official outlook for the upcoming fiscal year. The growth picture will determine whether the company achieves its third straight year of robust sales gains. Investors will also be following any comments management makes about the cost environment, particularly with tariffs set to boost prices on key inputs over the next few months.