Is Nike (NKE) Likely to Beat Earnings Estimates in Q2?

Leading sportswear retailer, Nike Inc. (NKE) is slated to report its second-quarter fiscal 2015 results after the market closes on Dec 18, 2014. In the last quarter, it posted a positive surprise of 23.9%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Nike has been posting solid quarterly results since it resorted to innovation in order to keep up with customer demand. Following a strong start to fiscal 2015, the company expects the rest of the year to display strength driven by momentum in sales and earnings per share as well as continued investment in growth strategies.

Nike anticipates its constant dollar revenues for the second quarter and fiscal 2015 to grow in the low-double-digits range on the back of strong customer demand in its largest markets and categories, specifically in the direct-to-consumer business. On a reported basis, revenue is expected to increase 1 to 2 points, lower than the projected currency neutral revenue due to a stronger dollar.

Further, the company raised its gross margin forecast for both second quarter and fiscal 2015 driven by the progress in its strategies aimed at improving average selling prices as well as continued growth in its high margin businesses, specifically direct-to-consumer.

The company also came up with positive earnings guidance, projecting second-quarter earnings per share to grow at a high-teens rate, while it is expected to surge nearly 20% in fiscal 2015.

Though the above mentioned iterations suggest a positive quarter ahead for Nike, we believe the company’s costs may be on the higher side due to its ongoing demand creation initiatives and increased investments in largest growth drivers.

Earnings Whispers?

Our proven model does not conclusively show that Nike is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 to surpass estimates. However, this is not the case here, as you will see below:

Zacks ESP: ESP for Nike is 0.00%. This is because the Most Accurate estimate stands at 69 cents per share, which is in line with the Zacks Consensus Estimate.

Zacks Rank: Nike’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat:

Constellation Brands Inc. (STZ) with an Earnings ESP of +1.77% carries a Zacks Rank #2 (Buy).

CarMax Inc. (KMX) holds an Earnings ESP of +1.85% and a Zacks Rank #3.

Red Hat Inc. (RHT) has an Earnings ESP of +3.70% and a Zacks Rank #3.

Read the Full Research Report on RHT
Read the Full Research Report on NKE
Read the Full Research Report on STZ
Read the Full Research Report on KMX


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