Investors have been happy with Nike's (NYSE:NKE) business performance so far this year. The footwear and sports apparel giant has overcome rising costs and new competition in both the online and offline sales channels to post market-thumping sales and profit growth.
Yet a consumer-facing business needs to constantly work to resonate with shoppers and stand out from the competition -- and that's especially true during the holiday selling season that just started. The good news is that Nike will soon reveal a treasure trove of data describing its sales and competitive position both at home and in key international markets like China. Below, we'll look at a few of the key metrics investors will be watching when the retailer announces fiscal first-quarter results on Thursday, Dec. 19.
A global growth company
Nike kicked off its fiscal 2020 year back in September, and investors couldn't have been more pleased. Sales growth surpassed the targets that CEO Mark Parker and his team had issued, and the company also beat expectations around profitability and earnings.
This week, all eyes will be on whether Nike's positive momentum carried into the start of the holiday shopping crush. Investors will be watching for signs that demand is still strong in China, which accounted for nearly a quarter of Nike's global growth last year. At home, its success in standing out against rivals like Under Armour will depend on Nike's continued ability to launch popular new products.
Sales growth at about 10% this quarter would support that bullish reading, as would continued success at raising gross profit margin through more direct-to-consumer sales. On the other hand, if Nike stumbled in the weeks heading up to the holiday season, the company would likely cite global trade issues and economic volatility in places like Hong Kong.
Spending both more and less
Nike executives believe that their financial resources are a major asset, and they intend to press that advantage to keep rivals in catch-up mode. Investors saw evidence of that strategy at work with the company's recent acquisition of the data analytics company Celect and with Nike's aggressive spending on marketing, research and development, and the direct-to-consumer sales channel.
At the same time, the growth stock is cutting in places that aren't delivering healthy returns, including by developing fewer products and discontinuing models when they don't quickly resonate with consumers. These initiatives impact selling expenses, which ticked slightly higher to more than 31% of sales last quarter. Investors are expecting further increases here as the fiscal year progresses but nothing large enough to threaten Nike's robust earnings growth.
The new outlook
Nike's outlook always captures investors' attention, but that update takes on additional weight this week because it will incorporate management's reading of sales data over Black Friday and the days that have followed. Executives boosted that 2020 forecast back in September but might make another adjustment on Thursday to better reflect current demand.
As it stands today, Nike is predicting that sales growth will accelerate in fiscal 2020. Gross profit margin should also expand, leading to earnings growth in the mid-single digits. Each of these forecasts is subject to revision in the report, with changes likely impacting the stock's short-term price movement but doing little to change the overall positive operating track investors have seen for Nike over the past few years.