Nike Shares Retreat Heading Into Fourth Quarter Earnings

Jun.27.12 | About: Nike Inc. (NKE)

By Guy Hananya

Nike (NKE) is slated to report 4Q 2012 earnings after the close of trading on Thursday, June 28 with a conference call anticipated at 5:00 p.m. EST. The actual results are typically available via press release at 4:15 p.m. EST. Nike faces stiff competition, a weak macroeconomic environment, as well as a strong Dollar, which will likely weigh on its upcoming results and future performance.

Outliers & Strategy

Key measures:

  • Earnings Per Share: The value for this measure typically compares with consensus estimates. Earnings Per Share estimates ranging from $1.24 to $1.43, with consensus coming in at the high end of estimates at $1.37 (Source: Yahoo! Finance). Nike has beat consensus estimates by an average of 6% over the past four quarters.
  • Revenue: Revenues are expected to be in the range of $6.39 bln to $6.60 bln, bracketing the current consensus of $6.52 bln. (Source: Yahoo! Finance).
  • Future Orders: Last quarter Nike reported Future Orders, scheduled for delivery from March through July 2012, to increase by 15% compared to the prior year. This positive outlook is attributed to the upcoming London Summer Olympics, as well as the European Soccer championships. Future orders a critical measure for Nike are seen as a precursor for the next 3 months, merchandise scheduled to be delivered from June to November 2012.
  • Given the recent pullback, Nike is now trading at just 20.5x earnings, a steep discount to its competitors Under Armor (UA) (51.14x) and Lululemon Athletica (LULU) (47.04x), also below the industry average of 25.66x.

Recent News

  • 06/25: Jefferies maintained its Buy rating on Nike but cut its price target from $130 to $115, citing European headwinds and high inventory levels, according to a report on
  • 06/22: Sterne Agee reiterated its Buy rating and $125 price target for Nike. The firm cited a robust pipeline for the positive outlook, coupled with products, according to a report on
  • 06/20: Nikes Head of U.K. PR and Communications, Ryan Greenwood, indicated that the Olympic Games give Nike the chance to build a buzz and showcase its new products, according to a report on
  • 05/31: Nike announced its intention to divest two of its wholly-owned affiliate brands, Cole Haan and Umbro. This will allow Nike to focus on driving growth in its NIKE, Jordan, Converse, and Hurley brands.
  • 05/14: Nike declared a quarterly cash dividend of $0.36 per share, resulting in a yield of 1.4%.

Technical Review

Nike shares are down 7.5% in the month of June, recently breaking below support at $99, en route to its lowest level since late December, 2011. Should earnings disappoint, look for further downside risk to long-term support near $95. Concurrent with this move downward, the Relative Strength Index tumbled toward 30 - signaling the shares are in oversold territory. Should earnings surprise to the upside, look for near term resistance at the 200 day SMA near $100. (Chart courtesy of

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(Click to enlarge)


Nike shares have been hit hard due to shrinking profit margins, significant exposure to Europe and China, high inventory levels, currency headwinds, and a weak macroeconomic backdrop. Given the recent negativity, a positive 4Q release on Thursday could trigger a turnaround in Nike stock. Furthermore, a robust product pipeline as well as the upcoming London Olympics could reverse the weak sentiment surrounding Nike. With shares trading at a discount to its competitors and exhibiting a level that are technically oversold readings, Nike is positioned for a turnaround if earnings were to exceed reduced expectations.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.