Nike to report results of its third fiscal quarter
Nike (NKE) is scheduled to report results of its third fiscal quarter after the market close on Tuesday, March 24, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. CORONAVIRUS: Nike announced on March 15 that it will close stores in multiple countries around the world including in the United States, Canada, Western Europe, Australia and New Zealand to limit the spread of the coronavirus. The closures went into effect from March 16 and will last until March 27. The company said it was taking additional steps in other Nike-managed facilities, including the option to work from home, staggered work schedules, social distancing and additional safety and cleaning steps to help protect and support its teammates.
Barclays analyst Adrienne Yih lowered the firm's price target on Nike to $106 from $111. While the analyst reduced Nike's fiscal Q3 and Q4 estimates to account for a material COVID-19 impact, she continues to rate Nike her Top Pick over the course of the subsequent 12 to 18 months. Nike's innovation, product and brand strength, and consumer mindshare will enable it to recover lost sales and return to its prior growth trajectory once COVID-19 has passed, Yih said. Morgan Stanley analyst Kimberly Greenberger said she sees downside risk in the 1% to 6% range for her current Q3 revenue estimate for Nike due to the coronavirus headwind and sees risk to EPS of 2c-15c from her current estimate of 70c. While store closures in China may cause Nike to temper its full year revenue guidance, she expects the market to look past this transitory issue and would add to positions on any pullback, said Greenberger. 2. OLYMPICS: The Japanese Olympic organizing committee and Japan's Prime Minister, Shinzo Abe, announced Tuesday that the Olympic Games will be rescheduled "to a date beyond 2020 but not later than summer 2021" to safeguard the health of the athletes, everybody involved in the Olympic Games and the international community. Nike provides uniforms and shoes for sports such as basketball and track and field, as well as skateboarding apparel to wear on the medal stand.
3. GUIDANCE: In December, Nike forecast Q3 revenue growth in the high single digit range, in line with that of Q1. The company said it continued to see high single digit revenue growth in 2020. Wedbush analyst Christopher Svezia said Nike's Q3 results should not surprisingly miss Street expectations, and the FY20 outlook should be lowered given negative impacts related to the coronavirus. 4. MANAGEMENT SHUFFLE: Nike promoted CFO Andy Campion to COO, marking the first major shake-up for new CEO John Donahoe. Campion succeeded Eric Sprunk, who retired from the company. Matthew Friend was named CFO, while Heidi O'Neill was named president of consumer and marketplace operations. Last year, Nike announced the "Consumer Direct Offense," a new alignment that "allows Nike to better serve the consumer personally." As part of the new alignment, the company will "deeply" serve customers in 12 key cities, namely New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan. Nike has said that the changes will result in an overall reduction of roughly 2% of its global workforce.
5. COMPETITION: Nike is under pressure from competitors including traditional players Under Armour (UA, UAA) and adidas (ADDYY), as well as from Amazon (AMZN), which now has private-label sportswear available on its site. On March 17, adidas joined competitor Nike (NKE) in announcing store closures in response to the COVID-19 outbreak, Reuters reported. adidas and Reebok-owned stories in Europe, North America, and Canada will be shuttered temporarily. BofA analyst Robert Ohmes upgraded Nike to Buy from Neutral with a price target of $85, down from $105, following the 30% decline in the shares since the COVID-19 outbreak. He believes current global athletic momentum favors Nike in both footwear and apparel and argues that the challenging environment could boost the company's global market share momentum as "the key brand that wholesale customers shift orders to in times of distress."