Nike Inc. is set to report first quarter results on Thursday, and while two notable analyst firms expect the company to beat earnings-a-share consensus estimates by the same amount, how they arrived at their forecast differs.
The two firms also have different ratings on the stock.
BB&T Capital Markets analyst Corinna L. Freedman sees Nike delivering earnings a share of $1.21, which is two cents higher than consensus. Freedman said foreign currency exchange pressure will “likely continue to weigh on results,” adding that results will also continue to be impacted by “heightened macro pressures in China.”
“Although we maintain our ‘hold’ rating due to valuation, we believe trends, both secular and fashion, remain strongly in Nike’s favor,” Freedman said. “In addition, we believe an elevated closeout level persisted through the quarter given the lingering impact of port congestion, capping potential gross margin upside in North America.”
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Freedman described top-line sales trends as “favorable,” but higher inventory levels will certainly put pressure on margins. It will be most notable in the company’s outlet channel. “However, we anticipate a continued mix shift towards Nike’s [direct-to-consumer] channel and higher-margin products will serve to offset some of the pressure,” Freedman explained. “Specifically, we continue to believe the company’s e-commerce business continues to benefit from more targeted advertising and enhanced merchandising and highlight increased catalogue mailings during the quarter.”
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Telsey Advisory Group’s analysts also see Nike beating earnings a share estimates by two cents. The firm expects sales to increase 3.5 percent. Like Freedman, the currency exchange issues will impact results, Telsey believes. However, the firm has an “outperform” rating on the stock along with a $128 price target.
“Although the overall retail space has been choppy, athletic apparel and footwear have remained staunch out-performers within the consumer space,” Telsey analysts said in their report today. “Nike has been called out by many retailers as one of the best performing brands within the athletic space, and we expect constant-currency results to remain robust, though [currency exchange issues] could create a little noise. We upgraded the stock in late August when the market volatility created a buying opportunity to get into a best-in-class company with a world-class brand, and we continue to reiterate our ‘outperform’ rating.”