Nike (NKE) is scheduled to report results of its second fiscal quarter after the market close on Thursday, December 20, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. GUIDANCE: Along with its last report, Nike guided for "strong" sequential revenue growth in Q2, which compares to analysts' current consensus of $9.17B. Nike previously raised its fiscal 2019 revenue growth view to the high single digit range from the previous guidance of growth in the mid to high single digit range. Analysts currently expect Nike to report FY19 revenue of $39.13B. Ahead of the company's earnings report, Canaccord analyst Camilo Lyon said he expects Q2 results to be robust and balanced. He also sees the potential for upside driven by accelerating growth in North America, continued momentum in Greater China and APAC, and slight growth in EMEA given tough comparisons. Credit Suisse analyst Michael Binetti estimated Q2 EPS of 44c, but sees upside with checks suggesting sell-throughs have continued to accelerate in all major markets. Binetti thinks possible gross margin upside is the key to positive EPS revisions from here. Wedbush analyst Christopher Svezia said that while FX headwinds accelerated in Q2, underlying revenue growth and continued gross margin improvement should yield EPS upside and a largely sustained outlook for FY19.
2. CONSUMER DIRECT OFFENSE: Last year, Nike announced the "Consumer Direct Offense," a new alignment that "allows Nike to better serve the consumer personally." As part of the new alignment, the company will "deeply" serve customers in 12 key cities, namely New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan. Nike has said that the changes will result in an overall reduction of roughly 2% of its global workforce.
3. INCREASED COMPETITION AND PROMOTIONAL ACTIVITY: Nike is under pressure from competitors including traditional players Under Armour (UA, UAA) and adidas (ADDYY), as well as Amazon (AMZN), which now has private-label sportswear available on its site. Jefferies analyst Randal Konik said his firm's November webscrapes showed that Nike continues its dominance over adidas in running in the U.S., with strength in Air VaporMax and Air Max 270.
4. TARIFFS: Wedbush analyst Christopher Svezia believes the impact to Nike's EPS from tariffs may prove to be immaterial. Oppenheimer analyst Brian Nagel argued that while the dynamic surrounding potential, incremental tariffs on Chinese-manufactured items imported to the U.S. is fluid, Nike is quite well insulated to this threat. Per his math, footwear and apparel manufactured in China and sold in the U.S. represent just 10%-15% of total production in these categories for Nike, and the company already operates manufacturing facilities elsewhere in Asia and could further shift production out of China, over time, if necessary. Further, Nagel pointed out that management indicates that given the complexity of the overall Nike manufacturing and sourcing operations, the company has many levers to pull in order to help offset impacts of potential incremental import costs. Athletic footwear and apparel manufactured in China are already subject to duties at a mid-teens rate, while the company is enjoying significant pricing power with consumers, he added.
