The global leader of sports equipment and apparel maker, Nike Inc. (NKE) is expected to report first quarter 2012 earnings on Thursday, September 22, 2011. The Zacks Consensus Estimate for the first quarter is $1.21 per share. This represents a year-over-year growth of 6%.
Fourth quarter Recap
Nike posted strong fiscal 2011 fourth-quarter earnings of $1.24 per share, up 17.0% from the year-ago earnings of $1.06 per share, handily beating the Zacks Consensus Estimate of $1.16 per share.
Strong quarterly growth in revenue coupled with lower selling, general and advertisement expenses as a percentage of revenue resulted in record fourth-quarter 2011 earnings.
Despite macroeconomic headwinds, Nike's total revenue grew 14.0% to $5,766.0 million from $5,077.0 million in the prior-year quarter, primarily driven by exceptional growth in North America and Greater China regions. The company continued to benefit from its strategy of consistently focusing on innovative products that provide a competitive edge over its rivals. Revenue for the quarter surpassed the Zacks Consensus Estimate of $5,532.0 million.
Agreement of Analysts
In the last 30 days, out of the 15 analysts covering the stock, only 1 analyst has decreased the estimate for the first quarter of fiscal 2012, while none of the analysts increased their estimates for the same quarter. The last 7 days followed a similar trend. For fiscal 2012, none of the analysts moved their estimates in either direction in the last 30 and 7 days, respectively.
Magnitude of Estimate Revisions
With hardly any earnings revision by the analysts in the last 30 days, the Zacks Consensus Estimates for the first quarter of 2012 and fiscal 2012 remained unchanged at $1.21 and $4.83 per share, respectively.
Surprise History
With respect to earnings surprise, Nike has met as well as topped the Zacks Consensus Estimate in the last 4 quarters, ranging between 0.0% and 12.9%, with the four-quarter average at 5.4%.
Our Recommendation
Taking into account Nike’s dominance in the athletic industry, we believe that the company has the ability to drive consistent growth. The company’s long-term strategy of aggressively expanding operations in the emerging markets and focusing on direct-to-consumer business and other brands adds to our positive sentiment.
The unique amalgamation of solid balance sheet strength, free cash flow generation and an efficient managerial team will enhance Nike’s top-line performance in the coming quarter.
Nike’s exposure to international markets however makes the firm susceptible to currency fluctuations. The strong U.S. dollar may adversely affect the top- and bottom-line results. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the U.S. An increase in product price may have a direct impact on consumer demand.
Nike’s business remains highly competitive in both domestic and international markets running up against local as well as established players like Deckers Outdoor Corp. (DECK), Adidas AG (including Reebok) and Puma.
We maintain our long-term “Neutral” recommendation on Nike. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no directional pressure on the stock.
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