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Nike (NKE) Q1 2020 Earnings Preview: North America, China and More

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Nike (NKE - Free Report) is set to report its first-quarter fiscal 2020 financial results after the closing bell on Tuesday, September 24. The sportswear powerhouse has seen its shares slip slightly over the last six months, which comes in slightly above the Apparel Market’s 4.5% downturn.

However, Nike rival Adidas (ADDYY - Free Report) and scorching-hot Lululemon (LULU - Free Report) have crushed NKE stock in the past 12 months. With this in mind, let’s see what investors should expect from Nike’s upcoming quarterly results.

Nike: What You Need to Know

Nike, like everyone else in retail from Target (TGT - Free Report) to Gap (GPS - Free Report) , has spent the last several years bolstering its digital and direct-to-consumer push in the Amazon (AMZN - Free Report) age. The Beaverton, Oregon-based company’s innovations have paid off, unlike Macy’s (M - Free Report) and other department stores’ efforts. The firm has rolled out multiple apps and increased its already massive presence across social media, where people now shop directly from places such as Instagram (FB - Free Report) .

The company has also improved its supply chain and put RFID tags into products, along with other digital-focused moves. More recently, Nike purchased “retail predictive analytics and demand sensing” firm, Celect, as part of its larger Consumer Direct Offense strategy. CEO Mark Parker and executives now project that Nike’s digital division will make up 30% of the company’s total business by 2023, compared to roughly 15% at the moment.

On top of that, Nike has remained at the forefront of big-time sports around the world, from soccer and basketball to quickly-expanding e-sports. Nike has, in recent years, jumped further into the world of fashion through collaborations that help Nike remain as powerful as ever from shoes to streetwear. And Nike hasn’t forsaken brick-and-mortar. Instead, NKE has remodeled and modernized stores and is as committed to remain a staple in global cultural hubs from New York to Tokyo.

Despite Nike’s continued strength, Adidas has grown in popularity around the world over the last five-plus years, and in North America in particular. Meanwhile, up-and-coming athleisure power Lululemon has pushed into the market in a big way, inspiring newcomers such as Outdoor Voices to chase consumers in the growing market.

 

 

 

 

Q1 Revenue Outlook

Moving on, Nike’s Q1 2020 revenues are projected to jump 5% to hit $10.45 billion, based on our current Zacks Consensus Estimates. This would come in above the fourth quarter’s 4% growth, but fall below Q3’s 7%, Q2’s 9.6%, and the first quarter of 2019’s 9.7%. Investors should note that roughly 60% of Nike’s sales take place outside of North America, with around 15% to 20% coming from Greater China.

Therefore, currency fluctuations, from the Chinese yuan to the Euro, can impact revenue. This can become even more exaggerated when the U.S. dollar is strong, as it is right now. For instance, Nike’s full-year 2019 sales jumped 7%, but climbed 11% excluding currency changes.

North America & China

Our Key Company Metric estimates call for the sportswear firm’s North American revenue to climb roughly 4.9% from $4.145 billion in the year-ago period to hit $4.349 billion. This would fall short of Q4’s 7% growth in the region that accounts for roughly 40% of total revenue.

Nike’s sales in Greater China are projected to pop from $1.379 billion in Q1 2019 to reach $1.552 billion, which would mark 12.5% expansion. As investors might have guessed, this would also mark slower growth than last quarter’s 16% jump.

2020 & Beyond

Peeking further ahead, Nike’s fiscal 2020 sales are projected to pop 7.8% to reach $42.17 billion, with 2021 expected to come in 8.4% higher at $45.70 billion. Both of these estimates represent larger growth than Nike has posted in any of the last four years—7.5%, 6%, 6.1%, and 5.8%.

Earnings Trends

At the bottom end of the income statement, Nike’s adjusted Q1 EPS figure is expected to climb 5.9% to reach $0.71 per share. This would blow away Q4’s 10% decline, which also saw Nike fall short of quarterly earnings estimates for the first time in years.

More importantly, Nike’s fiscal 2020 earnings are projected to climb 16.5%. NKE’s fiscal 2021 EPS figure is then projected to climb 18.1% higher than our 2020 projection. Despite Nike’s solid overall earnings outlook, we can see that the company’s bottom-line estimates have fallen dramatically over the last 90 days.

 

 

 

 

Bottom Line

Along with all of the metrics we have discussed, Wall Street wants to see Nike’s e-commerce growth continue. Investors must also pay close attention to any trade war-related updates heading into the vital holiday shopping period.

Nike is a Zacks Rank #3 (Hold) right now. Nike stock slipped 0.93% Friday to hit $86.86 per share, roughly $3 off its 52-week highs of $90.00. NKE is one of nine total S&P 500 members set to post its quarterly results next week (also read: The Q3 2019 Earnings Season Gets Underway).

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