As we begin this week in earnings news, athletic footwear maker Nike (NYSE:NKE) takes the pole position with an earnings release due out tomorrow after market-close. While most companies are just beginning their new fiscal years, Nike's already three-quarters to the finish line. Tomorrow's news will cover the results through fiscal Q3 2006.

Wall Street Wisdom:

  • General consensus. Eighteen analysts follow Nike, and they're mostly bullish on the stock. Thirteen of them rate the stock a buy and only five a hold.
  • Revenues. Which isn't to say that tomorrow's news is going to burn up the track. Analysts expect sales growth for the quarter to come in just over 6%, at $3.52 billion.
  • Earnings. They're more optimistic about earnings -- but only a bit. Profits are predicted to rise 9% to $1.10 per share.

Margin watch:
Nike's expected rise in profits is due to two factors. First, the moderate growth in sales. Second, better profits earned on those sales. Over the past 18 months, the company's gross margins have improved only 130 basis points. Not impressed? Well, consider that by the time those extra basis points reach the bottom line (picking up 20 more bp along the way), they'll make the firm nearly 20% more profitable now than it was a year and a half ago.

Margins %

8/04

11/04

2/05

5/05

8/05

11/05

Gross

43.3

43.7

44.1

44.5

44.7

44.6

Op.

12.7

13.3

13.6

13.8

14.4

14.4

Net

7.9

8.4

8.6

8.8

9.4

9.4

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Year to date, Nike has grown its revenues by 9% in comparison to its fiscal Q2 2005 numbers. Meanwhile, each of the past two quarters saw Nike's inventories rise 12% versus their previous-year levels. Call that a "yellow flag," because such trends often mean a company is manufacturing goods that aren't selling well, which must then be discounted to move them out the door. An established retailer like Nike will probably have well-managed inventory, but keep an eye on the inventories tomorrow, just to be sure.

In other news, Nike's diluted share count has fallen 2.8% over the last year, with the company spending $240 million to buy back shares in the fiscal second quarter alone. Although in December 2005, the stock's price briefly spiked above where it had spent the bulk of Q2, much of Q3 saw Nike's stock selling for prices that may well have looked attractive to management. Tomorrow, expect to see the share count fall even lower.

Fool contributor Rich Smith has no interest, short or long, in Nike.