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Revival of North America Sales to Aid NIKE (NKE) Q4 Earnings

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NIKE Inc. (NKE - Free Report) is slated to release fourth-quarter fiscal 2018 results on Jun 28. The question lingering in investors’ minds is whether this leading sports apparel retailer will be able to post positive earnings surprise in the quarter to be reported.

In the last reported quarter, the company delivered a positive earnings surprise of nearly 30.8%. Moreover, it has maintained a spectacular record for more than three years, delivering positive earnings surprises for 23 straight quarters. In the trailing four quarters, the company recorded an average positive earnings surprise of 22.5%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is 64 cents, reflecting a year-over-year increase of 6.8%. We note that the Zacks Consensus Estimate for the fiscal fourth quarter has been stable in the last 30 days. Moreover, analysts polled by Zacks expect revenues of $9.4 billion, reflecting an increase of 8.2% from the year-ago quarter.

NIKE, Inc. Price and EPS Surprise

NIKE, Inc. Price and EPS Surprise | NIKE, Inc. Quote

Moreover, NIKE outperformed the industry in the past month, indicating a positive sentiment ahead of the earnings release. Its shares increased 6.1% compared with 4.2% growth recorded by the industry. Additionally, the company’s shares have witnessed growth of 17.4% in the last three months.



Factors at Play

Gains from NIKE’s robust growth and innovation efforts, alongside its strategy of acquiring sponsorships for various sporting events across the globe, are well reflected in its robust sales and earnings surprise trend. The company’s performance graph is influenced by strength in international business and the global NIKE Direct business. It has also made significant progress on its Consumer Direct Offense strategy, positioning it for robust growth in the future.

Further, the company closed third-quarter fiscal 2018 with expectations of a trend reversal in its North America business in the fiscal fourth quarter, backed by the introduction of innovation platforms and differentiated customer experiences in the marketplace. Consequently, it provided robust guidance for fourth-quarter fiscal 2018 along with initial view for fiscal 2019.

In the to-be-reported quarter, the company expects revenue growth of high-single digit, backed by persistent strength in international regions and the reversal of the trend in North America. Revenue growth in North America is now anticipated to be nearly flat compared with the prior-year quarter, with expectations to return to growth in the first half of fiscal 2019.

The Zacks Consensus Estimate for revenues in North America is $3,764 million, reflecting 0.3% gain from the year-ago quarter.

However, the company’s higher SG&A expenses, along with a soft margin trend, are likely to continue hurting results in the fiscal fourth quarter. It expects gross margin to be flat to up slightly in the to-be-reported quarter. Further, the company expects SG&A expenses to increase in the low-teens range, driven by continued investments in digital and NIKE+ membership.

While soft margins and higher S&A expenses pose concerns for the short term, the above-mentioned strategies clearly profess that NIKE has significant growth potential in the days ahead.

What the Zacks Model Unveils

Our proven model does not show that NIKE is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NIKE has an Earnings ESP of -0.26% and a Zacks Rank #3. Although the stock’s Zacks Rank increases the predictive power of ESP, its negative ESP makes earnings prediction difficult.

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:

Helen of Troy Limited (HELE - Free Report) currently has an Earnings ESP of +3.57% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aaron’s Inc. (AAN - Free Report) has an Earnings ESP of +10.66% and a Zacks Rank #3.

The Coca-Cola Company (KO - Free Report) has an Earnings ESP of +0.16% and a Zacks Rank #3.

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