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Momentum in North America to Aid NIKE's (NKE) Q1 Earnings
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After prolonged debates about impacts of NIKE’s (NKE - Free Report) new advertisement, featuring Colin Kaepernick, on its stock price, the company is moving closer to reporting earnings results on Sep 25. The company’s North America segment, which witnessed dismal trends for over a year, seems poised to contribute to its first-quarter fiscal 2019 results. Notably, NIKE’s North America business returned to healthy, sustainable growth in fourth-quarter fiscal 2018, reversing investors’ beliefs of prolonged weakness in the company’s largest market.
Notably, NIKE outperformed the industry in the past month, indicating a positive sentiment ahead of the earnings release. Its shares have increased 3.3% compared with 0.9% growth recorded by the industry. Additionally, the company’s shares have witnessed growth of 16.3% in the last three months.
North America Division’s Q1 Performance
In fourth-quarter fiscal 2018, NIKE’s North America business reported revenue growth of 3% to $3,875 million, both on a reported and currency-neutral basis. This growth was mainly backed by innovative platforms, strong Digital growth, sustained momentum in Sportswear and growth across Apparel business.
This trend reversal is a testament to the company’s previously announced target of returning North America to mid-single-digit growth in the next five years. It has efficiently worked upon shortcomings in its largest market over the past year. The company has revamped its business, with greater focus on direct-to-consumer sales through the launch of innovative Nike apps, and entering partnerships with e-commerce and social media websites like Amazon (AMZN - Free Report) , China’s JD.com (JD - Free Report) , and Facebook .
Notably, NIKE Digital grew more than 30% in North America, contributing primarily to growth, by reshaping consumer experiences at retail, both owned and partnered. The company’s locations, which leveraged digital connections with customers, drove more than two-thirds of overall growth in North America.
Outlook for North America
NIKE expects the momentum witnessed in North America to continue throughout fiscal 2019 and beyond. Additionally, the company is on track to return the Jordan brand to full growth in fiscal 2019, with initial success seen in the fourth quarter of fiscal 2018 in North America.
The company is reorganizing the supply of select styles across distribution channels. Alongside tightening supply in some platforms, it is expanding the supply of the most popular and iconic Jordan styles on the NIKE SNKRS app, which has quickly been positioned as the leading destination for high-heat footwear launches globally. Further, the company identifies significant opportunity to diversify the Jordan Brand for Women.
For North America, the Zacks Consensus Estimate for the fiscal first-quarter revenues is pegged at $4,047 million, which reflects growth of 3.1% year over year and 4.4%, sequentially.
Overall Business Trends
Apart from the trend reversal in North America, NIKE owes its robust surprise history to continued growth at international and NIKE Direct businesses, as well as strong progress on Consumer Direct Offense through innovation. Notably, the company has delivered positive earnings for over three years now, with fourth-quarter fiscal 2018 marking the 24th straight quarter of earnings beat. Moreover, sales topped estimates for the fifth straight quarter. Furthermore, the company continues to gain from robust growth and innovation efforts, alongside its strategy of acquiring sponsorships for various sporting events across the globe.
In the fiscal fourth quarter, the company’s overall revenues increased 13%, up 8% on a currency-neutral basis. Apart from the return to growth in North America, this included 23% growth in international business, with China surging 35%. Solid momentum in key performance categories, including Sportswear, and a 41% spike in NIKE Digital were other contributors.
Overall Earnings & Sales Expectations
Driven by solid momentum in business and budding growth graph in North America, NIKE raised its revenue guidance for fiscal 2019. It now expects revenue growth in a high-single digit compared with its initial guidance of mid- to high-single-digit growth. The raised view is mainly driven by increasing consumer demand for NIKE. For first-quarter fiscal 2019, it expects revenue growth to be in line with the fiscal 2019 forecast.
The Zacks Consensus Estimate for revenues is $9.9 billion, reflecting an increase of 8.9% from the year-ago quarter. Moreover, the Zacks Consensus Estimate for earnings is pegged at 62 cents, reflecting growth of 8.8% year over year.
For fiscal 2019, the company expects SG&A expenses to increase nearly at par with revenue growth but it is not targeting SG&A leverage. Increased investments in digital experiences and capabilities, product innovation, and brand marketing should result in higher SG&A expenses. Moreover, SG&A expenses will be higher in the first half due to increased investments, owing to key consumer and sports events like the World Cup.
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Momentum in North America to Aid NIKE's (NKE) Q1 Earnings
After prolonged debates about impacts of NIKE’s (NKE - Free Report) new advertisement, featuring Colin Kaepernick, on its stock price, the company is moving closer to reporting earnings results on Sep 25. The company’s North America segment, which witnessed dismal trends for over a year, seems poised to contribute to its first-quarter fiscal 2019 results. Notably, NIKE’s North America business returned to healthy, sustainable growth in fourth-quarter fiscal 2018, reversing investors’ beliefs of prolonged weakness in the company’s largest market.
Notably, NIKE outperformed the industry in the past month, indicating a positive sentiment ahead of the earnings release. Its shares have increased 3.3% compared with 0.9% growth recorded by the industry. Additionally, the company’s shares have witnessed growth of 16.3% in the last three months.
North America Division’s Q1 Performance
In fourth-quarter fiscal 2018, NIKE’s North America business reported revenue growth of 3% to $3,875 million, both on a reported and currency-neutral basis. This growth was mainly backed by innovative platforms, strong Digital growth, sustained momentum in Sportswear and growth across Apparel business.
This trend reversal is a testament to the company’s previously announced target of returning North America to mid-single-digit growth in the next five years. It has efficiently worked upon shortcomings in its largest market over the past year. The company has revamped its business, with greater focus on direct-to-consumer sales through the launch of innovative Nike apps, and entering partnerships with e-commerce and social media websites like Amazon (AMZN - Free Report) , China’s JD.com (JD - Free Report) , and Facebook .
Notably, NIKE Digital grew more than 30% in North America, contributing primarily to growth, by reshaping consumer experiences at retail, both owned and partnered. The company’s locations, which leveraged digital connections with customers, drove more than two-thirds of overall growth in North America.
Outlook for North America
NIKE expects the momentum witnessed in North America to continue throughout fiscal 2019 and beyond. Additionally, the company is on track to return the Jordan brand to full growth in fiscal 2019, with initial success seen in the fourth quarter of fiscal 2018 in North America.
The company is reorganizing the supply of select styles across distribution channels. Alongside tightening supply in some platforms, it is expanding the supply of the most popular and iconic Jordan styles on the NIKE SNKRS app, which has quickly been positioned as the leading destination for high-heat footwear launches globally. Further, the company identifies significant opportunity to diversify the Jordan Brand for Women.
For North America, the Zacks Consensus Estimate for the fiscal first-quarter revenues is pegged at $4,047 million, which reflects growth of 3.1% year over year and 4.4%, sequentially.
Overall Business Trends
Apart from the trend reversal in North America, NIKE owes its robust surprise history to continued growth at international and NIKE Direct businesses, as well as strong progress on Consumer Direct Offense through innovation. Notably, the company has delivered positive earnings for over three years now, with fourth-quarter fiscal 2018 marking the 24th straight quarter of earnings beat. Moreover, sales topped estimates for the fifth straight quarter. Furthermore, the company continues to gain from robust growth and innovation efforts, alongside its strategy of acquiring sponsorships for various sporting events across the globe.
NIKE, Inc. Price, Consensus and EPS Surprise
NIKE, Inc. Price, Consensus and EPS Surprise | NIKE, Inc. Quote
In the fiscal fourth quarter, the company’s overall revenues increased 13%, up 8% on a currency-neutral basis. Apart from the return to growth in North America, this included 23% growth in international business, with China surging 35%. Solid momentum in key performance categories, including Sportswear, and a 41% spike in NIKE Digital were other contributors.
Overall Earnings & Sales Expectations
Driven by solid momentum in business and budding growth graph in North America, NIKE raised its revenue guidance for fiscal 2019. It now expects revenue growth in a high-single digit compared with its initial guidance of mid- to high-single-digit growth. The raised view is mainly driven by increasing consumer demand for NIKE. For first-quarter fiscal 2019, it expects revenue growth to be in line with the fiscal 2019 forecast.
The Zacks Consensus Estimate for revenues is $9.9 billion, reflecting an increase of 8.9% from the year-ago quarter. Moreover, the Zacks Consensus Estimate for earnings is pegged at 62 cents, reflecting growth of 8.8% year over year.
However, the company’s higher SG&A expenses remain a concern for this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For fiscal 2019, the company expects SG&A expenses to increase nearly at par with revenue growth but it is not targeting SG&A leverage. Increased investments in digital experiences and capabilities, product innovation, and brand marketing should result in higher SG&A expenses. Moreover, SG&A expenses will be higher in the first half due to increased investments, owing to key consumer and sports events like the World Cup.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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