Nike (NKE) is set to report earnings for its first fiscal quarter of 2015 after the closing bell on Thursday September 25. The athletic wear giant is trading near all time highs and continuing to charge forward on strong revenue in North America and booming popularity in South America and emerging markets.
(Graph above from ChartIQ Visual Earnings)
On Thursday analysts expect Nike to report another robust quarter. Contributing analysts on Estimize are forecasting that profits will be up 6% on a year over year basis while revenues increase by 12%. If the Estimize community’s prediction comes true Nike will have accelerated its growth on both the top and bottom line compared to last quarter.
Riding on the World Cup
Soccer equipment and apparel is an area of expected growth for a second straight quarter. The final stages of the FIFA World Cup carried over into Nike’s first fiscal quarter of 2015 and there should be a residual effect from Nike’s heavy advertising in the Spring. Although Adidas was the official sponsor of the World Cup, that didn’t stop Nike and Under Armour (UA) from launching aggressive marketing campaigns featuring the players they sponsor. Nike is hoping that its promotional efforts will boost sales in South America and may cut into Adidas’ market share in Europe.
Margins and Share Buybacks
Expanding margins and a share repurchasing program are working in unison to boostNike’s earnings per share. Last quarter Nike reported a 1.7% increase in gross margins due to more frequent direct to consumer purchases (higher margin transactions) and a higher average sales price.
Additionally Nike repurchased 12.3 million shares throughout the quarter as part of its 4 year share buyback repurchasing plan. The program still has a couple years to go but at the end of last quarter 51.9 million shares had been repurchased for approximately $US3.4 billion in cash.
Forces working against Nike’s bottom line include higher input costs and unfavorably exchange rates due to a strong US dollar.
Sales by Region
In Nike’s 4th fiscal quarter of 2014 North American sales made up 44.4% of Nike’s total revenue. By increasing its footprint in South America and Europe Nike could see that figure fall slightly. Sales in North America increased by 10% on a year over year basis last quarter, but Nike’s most flourishing region was ’emerging markets’ which includes South America, but not China. Nike revenue’s rose by 25% in emerging markets last quarter excluding currency exchanges. Converting emerging market currencies back to US dollars adversely impacted Nike’s bottom line, lowering the net change in emerging market sales from 25% to just 9%.
Nike’s total sales were up 11%, and Asia was Nike’s most troublesome region. Revenue in Japan was flat and sales grew just 2% in China, a market where Nike has much more room to expand.
Nike’s brand is relatively weak in Greater China, there Nike only did $US702 million in business last quarter. China could be the key to Nike’s growth in the future and the athletic wear company will need to do much better there in coming years. The Chinese citizenry represents approximately 19% of the World’s population, but Nike’s sales there make up just 9.5% of the company’s total revenue. The rising consumer class in China is a huge opportunity that Nike ought to target aggressively in the near future.
Contributing analysts on Estimize are setting the bar high for Nike on Thursday. Nike’s earnings per share have been increasing by 3% to 4% over the past 3 quarters, but this quarter the Estimize community expects that rate to jump to 6%. Direct to consumer sales and strong pricing power are likely to drive profits this quarter despite the strong US dollar. Nike’s already a massive company but traders and analysts on Estimize agree that there’s plenty of opportunity ahead.
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