Nike (NKE) Q4 2019 Earnings Preview: China, North America & More

Shares of Nike NKE have fallen nearly 4% over the last three months after the sportswear powerhouse warned Wall Street of slowing growth last quarter. With Nike set to report its fourth quarter fiscal 2019 financial results on Thursday, June 27, let’s see what investors should expect from the company’s top and bottom lines, as well as its key region: China and North America.

Overview

Nike is coming off a better-than-projected Q3. However, executives said they expect a low-single-digit revenue gain in Q4, due to currency headwinds, which are projected to reduce growth by 6%. NKE stock is down over 10% since the firm reported its Q3 fiscal 2019 financial results on March 21. Meanwhile, the apparel market is down 7.6% as investors fear the U.S.-China trade war will negatively impact growth going forward.

In fact, in late May, Nike, Foot Locker FL, Adidas AG ADDYY, and a total of 173 companies in the general footwear industry wrote an open letter to President Donald Trump, urging him to reconsider his tariffs on shoes made in China. “The proposed additional tariff of 25 percent on footwear would be catastrophic for our consumers, our companies, and the American economy as a whole,” the Footwear Distributors and Retailers of America wrote.

With that said, Nike has returned to growth in its key North American market over the last year, after a downturn. This comes even as it faces more competition from the likes of Lululemon LULU, Adidas, Puma, Gap-GPS owned athleisure brands, and other smaller players. Nike, like other retailers, has focused its future on direct-to-consumer and digital-first growth through its own apps, website, as well as expansion across social platforms such as Instagram FB—which has beefed up its shopping capabilities.

CFO Andy Campion has said he expects Nike’s digital division will make up 30% of the company’s total business by 2023, compared to roughly 15% in the second quarter of 2019. It is far too easy to say that Amazon AMZN caused this change, but shopping habits have made the likes of Macy’s M, Nordstrom JWN, and Dick’s Sporting Goods DKS less relevant.

 

 

 

Outlook

Before we dive into what to expect from the firm’s Q4 fiscal 2019 metrics, investors will notice that NKE stock has easily outpaced the Apparel Market’s average over the past five years. This gap has shrunk in the last year and Nike is up 12% in 2019, compared its industry’s 19% climb. Nike shares hovered down 1.10% at $83.37 through late-afternoon trading Wednesday, which represented a roughly 7% downturn compared to its 52-week intraday high of $90.0 a share.

Looking ahead, our Zacks Consensus Estimate calls for the company’s quarterly revenue to pop 3.8% to $10.16 billion. Last quarter, Nike’s quarterly revenue climbed roughly 7% to $9.611 billion to surpass our Zacks Consensus Estimate. This, however, marked a slowdown from Q2’s 10% revenue growth.

At the bottom end of the income statement, Nike’s adjusted Q4 earnings are expected to slip 2.9% to $0.67 per share. NKE’s third-quarter earnings came in flat from the prior-year period. This also topped our estimate, which Nike pretty much always does. The firm boasts a 9.8% average earnings surprise over the trailing four quarters.

North America

Moving on, Nike’s North American revenues are projected to jump nearly 7% from $3.875 billion in the year-ago period to $4.139 billion, based on our NFM estimates. This would match last quarter’s 7% expansion in the region that accounted for around 40% of total Q3 sales.

 

 

Greater China

China, with its growing middle class and massive fashion hubs, has long been an area of intense focus for Nike. In fact, last quarter marked the firm’s 19^th consecutive quarter of double-digit revenue growth in the world’s second-largest economy. Sales in China surged 19% to hit $1.588 billion, which came in well above our $1.54 billion estimate. However, Nike’s performance in Greater China fell short of Q2’s 26% expansion.

With this in mind, Nike’s Q4 sales in the region are projected to climb just 6% from $1.468 billion in Q4 2018 to $1.558 billion—Nike’s sales in China soared 35% in the fourth quarter of 2018.

Bottom Line

Clearly, Nike is projected to see a slowdown, which management warned was due in part to currency headwinds. This means that Wall Street might pay even closer attention to the firm’s Nike Direct progress and any trade war updates.

Nike is scheduled to release its Q4 fiscal 2019 financial results after the closing bell on Thursday, June 27. Make sure to head back to Zacks for a complete breakdown of the sportswear giant’s actual quarterly metrics.

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