- Nike is set to report its Q1 2016 earnings result on Thursday, 24th September after market close.
- The stock has returned around 20% this year.
- Nike has strong fundamentals, and is likely to continue its dominance in sports apparel.
Nike (NYSE:NKE) is scheduled to report its Q1 2016 earnings result on Thursday, 24th September after market close. Nike stock has weathered the current market storm and has returned around 20% year to date, compared to 2% return by Nasdaq. Its long term performance has been equally impressive.
Analysts’ expect Nike to report an EPS of $1.19 on a revenue of $8.21 billion. It represents a year on year revenue growth of 2.8%. The relatively low revenue growth is due to higher base affect. The company’s revenue had grown by more than 15% in Q1 2015 due to FIFA world cup. Nike expects its operating margins to improve in Q1 2016 due to increased efficiency and higher average selling price of its products. However, since more than 50% of Nike’s revenues come from overseas, a strong dollar is likely to act as a headwind. Nike has delivered a positive surprise in the last four quarters.
Threat From Competition
Nike has continued to maintain its dominance in sports apparel, fending off competition from the likes of Lululemon (NASDAQ:LULU) and Skechers (NYSE:SKX). Skechers has been growing at rapid pace, delivering a revenue growth of 34% in Q2 2015. While, Nike’s growth is nowhere near Skechers, it has continued to deliver double digit growth inspite of its size. With a loyal customer base which is continuously expanding, Nike is likely to maintain its market share. Nike continues to have more than 60% market share in the foot wear segment in North America. The sales in foot wear category is driven by higher margin basketball shoes, having a favorable effect on Nike earnings.
Growth in Lululemon’s and Skechers market share has come at the expense of Nike’s long-time rival Adidas. Strong R&D has helped Nike to remain ahead of its competition. The brand, comfort and performance offered by Nike shoes has created a very high switching cost, creating a high customer lifetime value for Nike. By creating Nike + fitness app and integrating it with its line of fitness shoes, Nike has been able to offer a complete ecosystem to its customers and keep them engaged.
A Company With Strong Fundamentals
Nike has continued to deliver strong revenue growth over time. Nike has registered a CAGR of 10% in last 5 years (ttm). However, revenue growth in the latest quarter slowed down to 4.7%. Nike earnings have also seen a strong growth. The company’s three year average operating margin stood at 12%. It has an attractive return on equity of 27.9% and a free cash flow margin of 14.2%. The company also has a strong track record of returning cash back to its investors. Nike has returned around $3.4 billion in share repurchase and dividends to shareholders in 2015 alone.
Dominance Will Continue
Nike is likely to register a lower revenue growth in this quarter,however, it is purely due to a higher base affect and is not representative of Nike’s future growth. Nike is likely to continue its dominance in sports apparel, especially footwear segment, powered by its strong R&D and loyal customer base.