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Will Supply-Chain Headwinds Continue to Mar NIKE (NKE) in Q4?

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NIKE Inc. NKE is slated to release fourth-quarter fiscal 2022 results on Jun 27. The leading sports apparel retailer is likely to have witnessed top and bottom-line declines in the fiscal fourth quarter. The company has been witnessing supply-chain constraints, continued weakness in Greater China and higher costs.

The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $12.1 billion, suggesting a 2% decline from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for the company’s fiscal fourth-quarter earnings is pegged at 82 cents per share, suggesting a decline of 11.8% from the year-ago reported number. Earnings estimates for the fiscal fourth quarter have moved up by a penny in the past seven days.

The consensus mark for fiscal 2022 revenues is pegged at $46.7 billion, suggesting 4.7% growth from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for the company’s earnings for fiscal 2022 is pegged at $3.69 per share, suggesting growth of 3.7% from the year-ago reported number. Earnings estimates for fiscal 2022 have moved up by a penny in the past seven days.

In the last reported quarter, the company delivered an earnings surprise of 19.2%. Its bottom line beat the consensus estimate by 34.2%, on average, over the trailing four quarters.

NIKE, Inc. Price and EPS Surprise

 

NIKE, Inc. Price and EPS Surprise
NIKE, Inc. Price and EPS Surprise

NIKE, Inc. price-eps-surprise | NIKE, Inc. Quote

Key Factors to Note

NIKE’s fourth-quarter fiscal 2022 revenues are likely to reflect weakness in Greater China due to the COVID-19 wave, and rising costs to support brand and digital investments. The company has been witnessing soft revenues in China for the past few quarters, owing to the resurgence of COVID-19 and the ongoing supply-chain disruptions.

Further, the return of sports activities and events has led to an increase in operating overhead and demand-creating expenses. The normalization of spending on brand campaigns and sustained investments in digital marketing to facilitate the rising digital demand have been resulting in higher demand creation expenses. Also, elevated wage-related expenses and increased technology investments to support digital transformation have been causing operating overhead expenses to rise. This has been resulting in higher SG&A expenses, which are expected to have continued in the fiscal fourth quarter.

On the last reported quarter’s earnings call, management anticipated SG&A expenses to rise in the mid-teens in fiscal 2022 in a bid to support the ongoing digital transformation.

NIKE has been experiencing shortages in Nike, Jordan and Converse sneakers across the majority of the markets, as demand continues to exceed inventory supply. The extended transit times, owing to the ongoing supply-chain disruptions, have been acting as a deterrent, resulting in higher product costs, stemming from rising input costs, supply-chain costs and other expenses related to expediting product delivery in North America. Although management has been undertaking pricing actions to mitigate the adversities, these are yet to get reflected in the company’s bottom-line results. The persistence of these trends is expected to have marred the company’s earnings in the to-be-reported quarter.

Also, the company’s fiscal fourth-quarter results are expected to reflect headwinds related to the pulling back of operations in Russia since the Ukraine invasion.

However, NIKE is expected to have witnessed continued strong demand for its products, robust performance in its digital and DTC businesses, and product innovation. Gains from its Consumer Direct Acceleration strategy are also expected to have been tailwinds.

The NIKE Direct business has been benefiting from robust growth in North America Direct, driven by the steady normalization of the owned retail business and continued momentum in the digital business. Revenues at NIKE-owned stores are expected to have gained from improved traffic and higher conversion rates.

On its last reported quarter’s earnings call, management noted that traffic trends began to move toward the pre-pandemic levels.

Additionally, improved NIKE Direct margins, driven by lower markdowns and higher full-price sales mix, have been aiding the gross margin, even though the headwinds related to escalated freight and logistic costs have persisted.

Zacks Model

Our proven model does not conclusively predict an earnings beat for NIKE this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NIKE has a Zacks Rank #4 and an Earnings ESP of -1.60%.

Stocks Poised to Beat Earnings Estimates

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

Deckers Outdoor DECK currently has an Earnings ESP of +7.54% and a Zacks Rank of 3. The company is expected to register top-line growth when it reports first-quarter fiscal 2023 numbers. The Zacks Consensus Estimate for DECK’s quarterly revenues is pegged at $577.9 million, which suggests growth of 14.53% from the prior-year quarter’s reported figure.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Deckers Outdoor’s quarterly earnings has been unchanged in the past 30 days at $1.53 per share, suggesting a 10.5% decline from the year-ago reported number. DECK has delivered an earnings beat of 1,115.3%, on average, in the trailing four quarters.

Skechers SKX currently has an Earnings ESP of +2.44% and a Zacks Rank #3. SKX is anticipated to register top-line growth when it reports second-quarter 2022 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $1.79 billion, indicating an improvement of 7.8% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for Skechers’ bottom line of 55 cents per share has been unchanged in the past 30 days. The consensus estimate suggests a decline of 37.5% from 88 cents reported in the year-ago quarter. SKX has delivered an earnings beat of 23.6%, on average, in the trailing four quarters.

BJ's Wholesale BJ currently has an Earnings ESP of +0.16% and a Zacks Rank #3. BJ is likely to register top-line growth when it reports second-quarter fiscal 2022 numbers. The Zacks Consensus Estimate for its quarterly revenues is pegged at $4.69 billion, suggesting 12.3% growth from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for BJ's Wholesale’s fiscal second-quarter earnings is pegged at 80 cents, suggesting a 2.4% decline from 82 cents reported in the year-ago quarter. However, the consensus mark has moved up by a penny in the past 30 days.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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