Nike (NKE) has a history of beating Wall-Street expectations, and that what usually makes it a good bet ahead of its earnings. Analysts expect the company to earn $1.16 on $5.81 billion revenue. Will the company keep up with its history when it reports earnings on March 22?
Company | Nike | Deckers Outdoor |
Current Price | $111 | $68 |
PE | 19.08 | 11.08 |
Operating Margin | 13.12 (%) | $20.68 (%) |
Revenue growth | 18.40 (%) | 40.40 (%) |
Earnings growth | 2.60 (%) | 39.80 (%) |
Source: Yahoo.finance.com
Most likely yes, as the company will benefit from the release of its new Nike Air Jordan Retro XI sneakers, selling at $180 that has attracted a great deal of interest among Nike's fans. But there are three things that worry me:
- A weak economy. Though Nike enjoys a strong brand name that makes demand for its products inelastic, a weak economy can taper consumer enthusiasm, especially in Europe where the economy is expected to be flat at best this year.
- Second, rising wages, especially in Asia, where Nike manufactures a substantial part of its sneaker supplies. According to a recent Wall-Street article, wages in China are expected to grow in double digits this year. Will Nike manage to pass these higher wages on to consumers in a weak economy?
- 3. Rising materials price. Shoe and apparel materials have been rising and they have been taking a toll on manufacturers that rely on them. Recently, Deckers (DECK) cited higher materials cost for a disappointing earnings report - the stock had a big plunge after the report. Will Nike report similar problems?
The bottom line: Nike is at risk of disappointing this quarter. That's why I will stay away from it.
