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Factors Likely to Decide the Fate of NIKE (NKE) in Q4 Earnings

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NIKE Inc. (NKE - Free Report) is slated to release fourth-quarter fiscal 2021 results on Jun 24. The leading sports apparel retailer is likely to have witnessed sales and earnings growth in the quarter under review. Strong digital momentum across all regions has been aiding the company’s top line.

The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $11.08 billion, suggesting a 75.5% increase from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for the company’s earnings for the fiscal fourth quarter is pegged at 50 cents, suggesting growth of 198% from the year-ago reported figure. Notably, earnings estimates have been unchanged in the past 30 days.

In the last reported quarter, the company delivered an earnings surprise of 20%. However, its bottom line significantly lagged estimates, on average, over the trailing four quarters.

Key Factors to Note

NIKE has been benefiting from robust growth in the digital and direct businesses, lower operating expenses, and improved margins. Amid the coronavirus crisis, digital portals have quickly gained prominence, becoming the primary channel to engage and serve customers. NIKE benefited from this shift, thanks to its efficient digital ecosystem that comprises its online site as well as commercial and activity apps.

NIKE, Inc. Price and EPS Surprise

 

NIKE, Inc. Price and EPS Surprise

NIKE, Inc. price-eps-surprise | NIKE, Inc. Quote

The company has been witnessing robust digital sales growth across all regions for the past few months. In the fiscal third quarter, digital sales for the NIKE brand witnessed double-digit growth across North America, Greater China and APLA along with triple-digit growth in EMEA.

Even as stores reopen, the company continues to witness strong digital trends, which demonstrate the strength of its brands and investments made over the past several years to improve digital consumer experiences. The persistence of the digital shopping momentum is likely to have contributed meaningfully to its sales in the fourth quarter of fiscal 2021.

Additionally, higher full-price product margins, owing to the geographic mix and favorable digital mix, have been aiding gross margin. Also, lower SG&A expenses due to tight operating expense management as well as effective marketing spending are likely to have aided the bottom line in the fiscal fourth quarter.

Moreover, lower demand-creation expenses, driven by a shift in demand-creation initiatives to better align its investments with product delivery timelines and market conditions, are expected to have aided the bottom line.

However, the company has been witnessing lower revenues at the wholesale business and NIKE-owned stores due to the pandemic-led disruptions. Additionally, softer sales growth rates in North America and EMEA are expected to have been headwinds. Shortages in the supply chain and port congestions in the United States are anticipated to have hurt the performance in the to-be-reported quarter.

On the last reported quarter’s earnings call, management issued its fourth-quarter fiscal 2021 expectations. It expects year-over-year revenue growth of 75% for the fiscal fourth quarter, backed by the anticipated easing of government-directed restrictions in Europe by mid-April and the gradual improvement of inventory transit times in North America. The company anticipates year-over-year gross margin expansion of up to 75 bps on continued shifts to the more profitable NIKE Direct business.

Also, fiscal fourth-quarter gross margin is expected to have been partly offset by increased logistics and freight expenses, and higher markdowns to clear excess inventory levels in Europe. SG&A expenses are expected to have increased slightly year over year, driven by increased investments and demand-creation expenses toward pre-pandemic levels. Further, SG&A expenses will likely reflect higher investments to accelerate the pace of its digital transformation.

Zacks Model

Our proven model does not conclusively predict an earnings beat for NIKE this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NIKE has a Zacks Rank #3 and an Earnings ESP of 0.00%.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Boyd Gaming Corporation (BYD - Free Report) has an Earnings ESP of +1.35% and it currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bed Bath & Beyond Inc. (BBBY - Free Report) presently has an Earnings ESP of +24.14% and a Zacks Rank #2.

Callaway Golf Company (ELY - Free Report) currently has an Earnings ESP of +100.00% and a Zacks Rank #2.

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