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Global leader in sports equipment and apparel, Nike Inc. ( NKE - Analyst Report ) posted robust third-quarter 2012 earnings results backed by a strong demand scenario for Nike brands, lower selling and administrative expenses and lower share count. The strong results also reflected revenue upside in all of the company’s brands including Converse, Hurley, NIKE Golf and Umbro, except Haan, which remained flat.
The company’s quarterly sales and earnings easily surpassed the Zacks Consensus Estimate. Further, the company’s future orders in third quarter end reflect a strong quarter ahead for Nike, with most of the orders being delivered from March through July 2012.
Despite solid third-quarter results, estimate revision by analysts point to a negative sentiment, resulting from higher inventories, which may weigh upon the company’s margins in the forthcoming quarters. The current Zacks Consensus Estimate for fourth-quarter 2012 is $1.36 per share, while fiscal 2012 estimate stands at $4.93 per share.
Third Quarter Synopsis
Nike Inc’s third-quarter 2012 earnings came in at $1.20 per share, up 11.1% from the year-ago earnings of $1.08 per share, surpassing the Zacks Consensus Estimate of $1.16 per share. During the quarter, robust demand scenario for Nike brands coupled with selling and administrative expense leverage and lower share count boosted its bottom line.
Nike's total revenue grew 15.1% to $5,846 million from $5,079 million in the prior-year quarter, primarily driven by growth in all key categories of NIKE Brand, and in geographic regions excluding Japan. Revenue for the quarter surpassed the Zacks Consensus Estimate of $5,829 million.
(Read our full coverage on this earnings report: NIKE Brands Lift Nike's 3Q)
Agreement of Estimate Revisions
Following the third quarter results, most analysts turned down Nike’s estimates for the next couple of quarters and fiscal 2012 and 2013. For the fourth quarter of 2012, 10 out 16 analysts pulled down their estimates while only 2 analysts raised estimates in the last 7 days. Estimates for the first quarter of 2013 saw only negative revisions with 6 out of 9 analysts moving down estimates while none moving in the opposite direction over the last week.
For fiscal 2012, 6 out of 18 analysts lowered estimates in the last 7 days while 4 analysts upped estimates in the same period. Last week, 9 out of 18 analysts moved down their estimates while only 2 of them raised estimates for fiscal 2013.
Magnitude of Estimate Revisions
Driven by majority downward revisions and only a few upward movements, the Zacks Consensus Estimates for the upcoming quarters and fiscal year periods witnessed a considerable dip. In the last 7 days, the Zacks Consensus Estimate for the fourth quarter came down by 5 cents to $1.36 per share. Negative revisions for the first quarter of 2013 led Zacks to slide down its estimate by 12 cents to $1.49 per share.
For fiscal 2012, negative revisions were to some extent offset by positive moves, with estimates moving down only 2 cents to $4.93 per share. However, estimates for fiscal 2013 slipped down 7 cents to $5.79 per share in the last 7 days.
Though Nike’s top and bottom lines performed well, the company’s increased inventories affected the margin performance in the past quarter. A continued trend of rising inventories signal further margin pressures for the company, which may ultimately impact the company’s bottom lines.
Moreover, sluggish discretionary spending and intense competition amid rapidly changing customer preferences will continue to weigh upon the company’s future operating performance. Nike faces intense competition in both domestic and international markets from local as well as established players, such as Adidas AG (including Reebok), PVH Corporation ( PVH - Snapshot Report ) and Brown Shoe Company Inc. ( BWS - Snapshot Report ) .
On the positive side, the industry leader in the U.S. footwear and athletic apparel continues to expand its global reach and market share by aggressively expanding its operations in the emerging markets. Further, the company is focused on expanding its direct-to-consumer business and other brands, which augur well for future operating performance. Moreover, the company’s near-to-debt free balance sheet offers financial flexibility to drive future growth.
Currently, Nike maintains a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, we retain a long-term Neutral recommendation on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education
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