3 Things To Look For When Nike Reports Its Q3 FY 2016 Earnings

  • Nike will report its Q3 FY 2016 earnings on 22nd of March.
  • Investors should expect management to discuss the companies digital and e-commerce strategies.
  • Nike management should address the status of its inventory weakness in North America.

Global footwear and apparel giant Nike (NYSE:NKE) will report its Q3 FY 2016 earnings on 22nd of March. Average analyst estimates come in at $0.49 earnings per share for the upcoming quarter. This would represent a 9% YoY increase if the company meets these estimates. Analysts estimate revenue to come in at $8.19 billion, representing a YoY growth of almost 10%. I really don’t see any reason why Nike would disappoint. Long-term minded investors should be on the look-out for the following items when Nike reports.

Cultural Strategies

Expect Nike to emphasize the importance of its culture. Nike resides in a position of market leadership, owning about 8.5% of the global market, according to the Bloomberg leaderboard. Nike caters to the sports industry and athletes participate in sports to win and triumph. The company takes these traits and applies them to its conduct in the marketplace. Nike understands that it must adapt and differentiate to succeed and remain the leader in the highly competitive footwear and apparel industry. Goals, scores and benchmarks represent an important part of sports. On that note, Nike ambitiously stated a goal of reaching $50 billion in revenue by 2020.

Company's management is fond of terms such as “complete offense”, which sounds like a strategy infused with an offensive attitude versus a defensive one when dealing with competitors. Adidas (OTC:ADDYY) recently changed CEOs and the financial community seems worried. Expect Nike management’s attitude to reflect a confident and proactive overtone in addressing any potential concerns on this development in the competitive marketplace.

Digital strategies

This is a big one for Nike long-term investors since consumers are increasingly shopping online. Nike’s management repeatedly touted its digital strategies as a great opportunity in the latest fiscal quarter, not only in terms of customer reach but also in terms of data usage. Management feels that it could deliver better design, functionality and even customization of Nike’s product based on an individual customer’s desires.

More recently, Nike announced the appointment of Adam Sussman to the newly created role of Chief Digital Officer, as well as the acceleration of Nike’s digital strategies. This gives an indication to the financial community that Nike means to take a proactive approach in adapting and staking a leadership claim on the future. Indicative of this corporate attitude, Nike’s Chief Financial Officer (CFO) said this in the most recent earnings call, “Our goal is to win now and create the future.” Nike expects e-commerce revenue to reach $7 billion by 2020.

North American weaknesses

Nike investors should expect a progress report on inventory weaknesses in North America, which is important considering that its North American segment comprises 46% of year-to-date FY 2016 revenue and 79% of its year-to-date earnings before interest and taxes. Nike dominates atheletic footwear market in U.S. with 60%+ market share. In the most recent quarter, Nike’s management partially blamed inventory weakness on congestion in the West Coast ports. Hopefully, Nike will flex its innovative and marketing muscle to better move products in one of its largest markets.

Concluding thoughts

Nike’s innovative culture, ambition and financial discipline serve as a recipe for long-term fundamental success, translating into a superior total return for its shareholders over the long-term. Currently, Nike stock is pricey. If Nike doesn’t meet earnings estimates, investors should take advantage of the opportunity stemming from any potential price decline to purchase shares in a rock solid business.

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