Shareholders of Nike NKE +4.55 percent are not accustomed to losing money. The company’s next earnings report is an opportunity for the sporting behemoth to avenge its previous decline.
In the last five years, Nike (NKE) has surged more than 90 percent, outpacing the S&P 500 SPX +3.06 percent’s 60 percent rise. During the pandemic, the stock reached all-time highs, comfortably outpacing its consumer discretionary counterparts for several years.
Even still, the stock has been hammered this year: Nike has lost about a third of its value in 2022, compared to the general market’s approximately 20% drop.
Nike is expected to earn an average of 81 cents per share on sales of $12.07 billion in its fiscal fourth quarter, which will be announced after the market closes on Monday.
Nike made 93 cents a share on sales of $12.34 billion in the same quarter last year. Despite this, the first three quarters of the company’s fiscal year are predicted to be stronger than last year’s, resulting in higher sales for the full year.
Before the release, analysts have been frantically lowering their forecasts. FactSet estimates that quarterly earnings per share revisions have fallen by more than 5% in the previous month and by as much as 1.1% in the most recent week.
What’s causing the nasty mood?
To start, China: Nike got dragged into the ongoing debate about alleged human rights breaches in Xinjiang. China: Customers in the West complained that the corporation wasn’t going far enough to disassociate itself from Western complaints of the Uighur population’s treatment.
Although this has mainly been overshadowed by concerns about the long-term impact of China’s zero-Covid policy on demand destruction. Adidas’ (ADDYY) most recent earnings report shows that this has already harmed sales in the area.
But that isn’t the only issue with Nike’s business model. Investors are also concerned about the long-term viability of the company’s home market in North America.
Lululemon and Foot Locker both reported strong quarterly results, but the concern is that customers are feeling the squeeze of rising inflation and are more inclined to cut back on casual products like shoes.
Even though they’ve been out of supply for two years because of the flu epidemic, they’re back in style now that holidays and weddings return. There are also concerns about extensive discounting due to high clothes inventories at other retailers.
Back in March, Nike claimed that its China business will improve sequentially and that it was working through inventory and supply chain challenges.
Investors, on the other hand, have little faith in months-old statements because of the quick change in the consumer environment.
This means that although meeting revenue and earnings targets are important, investors may be more interested in hearing what Nike has to say about these topics.
However, if it can demonstrate that its China business has continued to improve and that its inventory and North American sales look good, it might help alleviate some of the concerns about the stock’s performance.
Of course, Nike may remain a longshot if it fails to deliver on the key areas that scare investors the most.
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