Nike (NKE) is expected to report fiscal first quarter results after the bell on Thursday.
Investors are focused on how consumers are holding up amid fears of a spending slowdown. Challenges in China and the wholesale sector of the business will also be top of mind as Wall Street projects earnings per share and margins to shrink compared to the same period last year.
Nike’s stock has stumbled in anticipation. Shares are down 9% over the last month, and Wall Street analysts are warning of a subdued report from the athletic apparel behemoth.
Here’s what Wall Street expects, according to Bloomberg consensus estimates:
Revenue: $12.99 billion vs. $12.69 billion (same period year prior)
Adj. earnings per share (EPS): $0.75 vs. $0.93 (same period year prior)
Gross margin estimate: 43.7% vs. 44.3% (same period year prior)
“We think upward estimate revisions are unlikely, as uncertainty in China and the challenging US wholesale environment are offsets to potentially stronger gross margins,” Bank of America research analyst Lorraine Hutchinson wrote in a research note previewing the earnings release. “We remain Neutral and think valuation fairly reflects the lack of near-term positive earnings catalyst.”
Three months ago, Nike CFO Matthew Friend described “strong consumer demand” as a driver for sales during the fourth quarter. Investors will be on guard for any changes in that lookout ahead of the crucial holiday season. Other retailers have recently warned that the reemergence of student loan payments could impact sales.
Some analysts aren’t troubled, though. “The student loan repayment issue, I’m not as concerned for a company like Nike. … Consumers who want their product will find ways to purchase their product,” Forrester Research analyst Sucharita Kodali told Yahoo Finance Live on Tuesday.
Nike’s report also comes about a month after Foot Locker warned of a slowdown in its footwear business due to “price sensitive” consumers. About 64% of sales at Foot Locker (FL) are the Nike brand, according to Jefferies. If Foot Locker struggles to offload Nike inventory that could impact the shoe giant’s wholesale market, Wall Street analysts noted.
For the quarter, Wall Street expects sales in Nike’s wholesale segment to fall about 4% compared to the same period a year prior.
“While we believe FL’s result does indicate some potential pressure in North America wholesale, we believe that the brand continues to see fairly healthy levels of demand at other retailers (like Dick’s Sporting Goods (DKS), Kohl’s (KSS) and Academy Sports & Outdoors (ASO),” Goldman Sachs managing director Kate McShane wrote in a research note. “Further, other offsets include additional distribution expansion such as Macy’s (M) and DSW (DBI).”
Another concern: The Chinese economy has produced slower economic growth than expected this year. Wall Street analysts fear that could also weigh on companies like Nike, who have significant exposure to China.
“The China story is probably the biggest one here for Nike,” Kodali said. “The challenge is that Nike has been very dependent on the Asian market, certainly on the Chinese consumer. Not only do you have issues with the softening of the Chinese consumer and their spending ability but also just a lot of geopolitical risk that is there.”
Still, with 26 Buys, 12 Holds and just four Sell ratings from Wall Street analysts per Bloomberg consensus data, some Street analysts still see upside in Nike shares moving forward.
“Global business trends have likely been slightly worse than expected, but this is probably already priced into the stock and contemplated in the lower-end of Nike’s FY24 guidance range,” UBS analyst Jay Sole wrote in a note. “We believe the ‘bar’ for the event is a 1Q EPS beat, offset by a below-consensus Q2 guide, with Nike’s FY24 outlook remaining unchanged. Our view is Nike will meet this bar.”
Josh Schafer is a reporter for Yahoo Finance.
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