What To Expect From Nike’s Q3 Earnings

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Nike (NYSE: NKE) is scheduled to report its Q3 earnings on March 21. We expect the company to post EPS in the ~$0.62 range and revenues of about $9.6 billion, reflecting an increase of nearly 7% from the year-ago quarter. In the trailing four quarters, the company recorded an average positive earnings surprise of 15.6% and we expect this trend to continue with the company beating consensus expectations in this quarter as well.

Nike’s triple-double strategy – 2x innovation, 2x direct and 2x speed – is paying off, as evidenced by solid growth across footwear and apparel, driven by innovative platforms and strong owned and partnered digital channel in the first half of fiscal 2019. These efforts are also likely to benefit the company’s performance in Q3. The company’s stock surged by more than 30% in the past year, reaching record highs on multiple occasions. However, the unfavorable currency environment due to the global trade and geopolitical dynamics is likely to weigh on the company’s sales. We currently have a price estimate of $90 per share for Nike, which is marginally ahead of the current market price. We have summarized our full year expectations, based on the company’s guidance and our own estimates, on our interactive dashboard on Nike’s Expected Q3 Results. You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see all Trefis Consumer Discretionary Services company data here.

Key Indicators Likely to Impact Nike’s Financial Performance:

Nike Digital Continues To Grow

In Q2 2019, Nike Digital achieved growth of 41% on a constant currency basis, and we expect this trend to continue as Nike continues to invest to expand its digital ecosystem. Nike Direct constituted approximately 29% of the company’s total revenues in 2018, with mobile contributing more than 50% of Digital commerce revenue. Nike Direct’s revenue share is expected to cross 50% in the foreseeable future as the industry shift towards digitalization. The company’s wholesale channel is also expected to grow, but at a slower pace compared to the Digital segment.

Growth in International Markets, Women’s Business

Nike’s North America business returned to healthy, sustainable growth in the first quarter of fiscal 2019, and the momentum continued in the second quarter of fiscal 2019, registering revenue growth of 9%. At the same time, Nike continued its pace of double-digit growth internationally, primarily driven by its growth in Greater China. Nike’s management stated that the U.S.-China trade dispute was seen to have little impact on the company’s operations in China. We expect Nike’s strong international performance to continue to drive overall growth for the company in fiscal Q3.

The women’s Footwear and Apparel market is estimated at 1.5x the men’s footwear market globally, and yet today Nike’s Women’s business represents only 19% of the company’s total revenue. Although the Women’s business rate of growth outpaced the Men’s growth rate across geographies and achieved double-digit growth in Q2, we expect Nike’s Women’s business to further grow and become a larger part of the company’s operations.

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