Nike, Inc. (NYSE: NKE), the world’s preeminent designer, marketer, and distributor of athletic footwear and apparel, is poised to disclose its third-quarter financial results for fiscal year 2024 on March 21. With its shares currently trading around $100, investors are eyeing the upcoming earnings release to decide whether Nike represents a value-buy opportunity ahead of the disclosure.
Before the earnings release, let’s take a look at some of the key factors that could impact Nike’s performance.
1. Revenue could see a decline
On the downside, North American revenue is anticipated to drop by 2%, attributed to challenging wholesale comparisons. This comes despite upbeat feedback from wholesale customers like Foot Locker, which has observed strength in popular Nike lines such as Air Force 1, Dunk, and Air Jordan 1.
2. Margin could improve
On the upside, there are a few silver linings that may bolster Nike’s financials. The gross margin is expected to expand, thanks in part to reduced freight costs and a strong direct-to-consumer (DTC) performance. Moreover, strategic price hikes and continued albeit slowed growth in China are also cited as supportive factors.
From a cost perspective, Nike’s initiative to save $2 billion over the next three years is expected to improve operational efficiency, although a substantial portion will be reinvested. This focus on Opex control is key to enhancing profitability, and if Nike’s past performance in SG&A control is anything to go by, there may be an upside potential to earnings that is not fully accounted for in the stock price.
3. Long-term growth remains intact
The longer-term view also favors Nike, with revenue growth projected in the mid-single digits in FY25 and beyond, as the company’s pivot towards a direct sales model — already accounting for 44% of revenue — continues to underpin its financials.
4. Olympic boost
With the Olympics on the horizon, Nike is gearing up with fresh launches that could set the trend. New products often mean a spike in sales, so keep an eye on that.
5. Downside risks as DTC channel checks shows weakness
Despite some of the positive momentum expected, investors weighing the decision to buy into Nike before earnings release must consider the downside risks as well.
According to Sensor Tower data, downloads of the Nike mobile app declined year-on-year (yoy) while mobile app users also slowed. Google Trends also show searches for Nike weakened yoy.
To Buy or Not to Buy?
So, is now the time to invest in Nike? It is not a slam dunk, but with steady sales, potential profit surprises, and Olympic-sized opportunities ahead, you might want to consider having Nike in your investment game plan. Just be sure to do your due diligence – a good play is always well-researched.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.
