Nike (NKE) is scheduled to report results of its fourth fiscal quarter after the market close on June 24, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. GUIDANCE: In March, Nike forecast Q4 revenue growth of 75% from last year, against the consensus at that time of $10.37B. Nike also predicted gross margins for the quarter would be up up to 75bps vs. last year. In December, Nike boosted its fiscal 2021 revenue view to up low teens from up high single digits to low double digits, against analysts' consensus estimates of $41.99B at the time. Nike also raised its gross margin view for the fiscal year to up 50 basis points from flat year-over-year.
Even if Nike's Q4 revenue comes in light due to the Xinjiang cotton controversy in China, Morgan Stanley analyst Kimberly Greenberger sees room for further EPS upside on a gross margin beat and what she calls "potentially overly conservative" selling, general and administrative expense assumptions.
2. SUPPLY CHAIN ISSUES: BTIG analyst Camilo Lyon said supply chain issues in North America that first began late last year have likely started to improve and Europe appears to be "on the mend" as vaccinations roll out, but concerns around potentially weak China sales have reached a "point of heightened fears" among investors, even though discussions with his Chinese industry contacts suggest this will be a short-lived issue.
3. NEGATIVE CHINA TRENDS: Credit Suisse analyst Michael Binetti thinks Nike's trends in North America and Europe were stronger than expected in its fiscal Q4. However, he lowered his Q4 and fiscal 2022 estimates to reflect negative China trends lasting longer than initially expected and his view that Nike will accelerate investments "significantly faster than revenues" in the near-term. Nike China data suggest sales have remained persistently negative into June, Binetti told investors in a research note. Further, Credit Suisse Chinese athletic sector Analyst Jesalyn Wong's distributor contacts suggest Nike's also been significantly limited in its ability to run promotions to catalyze sales since March, the analyst points out. Binetti thinks Nike will maintain a "cautious posture" for China on its Q4 call.
OTR Global said Q4 sales were impacted by boycotts in China as well as longer than anticipated closures in Europe, while U.S. buyers are concerned about inventory availability.
4. BOYCOTT COULD IMPACT EARNINGS: UBS analyst Jay Sole believes that the company's China boycott related issues will impact its earnings, and because of the ongoing pandemic and low visibility in China, the management will take a very conservative approach to guiding. Sole adds however that Nike's option price skew suggests that the market is likely already braced for a below-consensus guide, limiting stock price downside.
5. SPORTSWEAR 'ON FIRE': In May, Jefferies analyst Randal Konik upgraded Nike to Buy from Hold with a price target of $192, up from $140. Increased interest in health and wellness, higher adoption of casualwear fashion and the return of sports and outdoor activities has the sportswear market "on fire" and he sees no signs of it slow, said Konik, who has become increasingly confident in Nike's medium-term growth and profitability trajectory. His view is that China will remain the fastest growing region for Nike in the years ahead and he notes that China is also the highest margin region for Nike.
BofA analyst Lorraine Hutchinson is bullish on the company's long-term prospects given its "accelerated innovation" and distribution strategy, but warns that risks around its profitability in China "blemishes" the investment story. Hutchinson added that investors are "well aware" that Q4 will be hurt by China boycotts, but the uncertainty about the duration of that weakness is a headwind for Nike.
