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Will Nike (NKE) Continue Growth Streak in Q1 Earnings? What to Expect

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Nike (NKE - Free Report) is set to report their fiscal 2020 first quarter earnings on Tuesday after the closing bell. NKE shares have risen 18.1% year-to-date and outpaced the broader apparel market’s 13.9% gain in 2019. The company is coming off a fourth quarter where they delivered solid fundamentals in the face of growing macroeconomic challenges, keeping their promise of expanding their iconic brand. Let’s take a look at Nike’s past quarter and how consensus estimates have the company performing in Q1.

Overview and Q4 Recap

The athletic wear giant sells its products to more than 23,000 retail accounts in the US and to over 24,000 retail accounts outside the US, reaching a wide array of consumers. The firm’s execution of its Consumer Direct Offense initiative as well as strength in the NIKE direct business has driven a robust sales trend.

Q4 2019 marked the company’s ninth straight revenue beat but earnings fell short of our consensus estimate, snapping its 28-quarter streak of earnings beats. The company reported net sales of $10.2 billion, jumping 4% from the year ago quarter; earnings fell 10% to $0.66 per share as administrative expenses and tax rates were deterrents in Q4. The NIKE brand grew 5% to $9.71 billion and the Converse brand dropped 4% to $491 million.

Within the NIKE Brand, the North America segment gained 7% thanks to continued growth in digital and significant market share gains across its wholesale partners. Continued innovation in their footwear department as well as strong demand in apparel also supplemented North American sales. Europe, Middle East, and Africa (EMEA) division sales were flat in the quarter but the firm reported that NIKE Digital grew 35%. Greater China continues to provide consistent growth for Nike as it rose 16% Y/Y, bringing in $1.7 billion in sales. Asia Pacific and Latin America sales came in at $1.38 billion in Q4, slipping 4% due to falloffs in footwear and apparel sales.

Q1 and Beyond

Nike reiterated its fiscal 2020 guidance in Q4 as it expects strong sales results driven by brand recognition and the Nike Direct initiative. The company also expects higher SG&A expenses and adverse currency to be headwinds for its bottom line.

Our consensus estimates anticipate for total sales to grow 5.05% to $10.45 billion while earnings rise 5.97% to $0.71 per share. The NIKE brand is projected to rake in $9.88 billion and the Converse brand is forecasted to bring in $538 million for jumps of 4.85% and 2.13%, respectively. North America and Greater China sales are expected to continue their growth campaign with respective gains of 4.94% and 13.2%. The EMEA division is expected to see growth of 1.38% while Asia Pacific and Latin America is projected to increase 2.24% in Q1.

Fiscal 2020 estimates call for a 16.06% bottom-line rally to $2.89 per share on the back of a 7.78% sales leap to $42.16 billion. NIKE brand products are projected to rise 7.87% and the Converse brand is expected to climb 2.57%.

The athletic wear giant should continue to focus on its NIKE digital initiative to expand its e-commerce presence if it wants to keep shareholders happy. Looming macroeconomic issues are also headwinds for the company; growth in China could be put in jeopardy if trade disputes escalate. Despite the solid Y/Y earnings growth outlook, estimates have fallen steadily over the past 90 days for Q1 and fiscal 2020, giving NKE a Zacks Rank #4 (Sell).

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