Nike Earnings Preview

Nike has managed to beat estimates three times in a row, but with renewed lockdowns in China and deteriorating consumer sentiment in America, is a fourth possible?
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The challenges grow

Rivals who have reported recently have shown a trend: Shoppers are becoming more price conscious, and prioritizing essentials. While footwear is an essential, Nike - like Adidas and UnderArmor - makes more money on the pricier shoes. That has created two problems: first, margin compression from the top. And second, increased inventories, which create increased operating costs. Some companies have resorted to cutting prices to move inventory, further undermining margins.

That points to some of the things investors are going to be paying the most attention to during the upcoming earnings. Nike's first fiscal quarter traditionally has lower margins as wholesalers stock up ahead of the holidays, and retail consumers are on vacation. So, guidance is likely to take precedence over earnings, as traders wonder if holiday sales are expected to remain solid.

Bringing the markets together

Direct-to-consumer sales have been an increasingly important aspect of business, particularly in the second largest market: China. This helps get around the effects of unexpected lockdowns. Additionally, in the prior quarter, Nike struggled to get inventory to the shelves. What might have been a problem before could actually be a competitive edge, if that means there is less inventory in a slowing demand market.

Nike is expected to report earnings of $0.93 on sales of $12.3B. While sales are expected to be pretty much even with last year, earnings are seen falling by around 20%, mostly an effect of compressed margins. Therefore, comments that the CEO might make about handling costs are likely to help reassure investors.

Nike’s IHS pattern

Nike printed a bullish engulfing candlestick on Tuesday after retesting the $103 support. Excluding the $99 low, the price first visited the said level on July 1st , and as a result, it just formed the beginnings of an inverse head-and-shoulders pattern. Below the 50-SMA at $110, however, the formation could still fail. Breaking below the neckline will open the door to $90.

The move off yearly lows has been supported by a bullish stochastic divergence. And now, the indicator shows a cross while moving back from oversold territories. If the 50-SMA breaks, the next stop would be around $120. Above there, the $140 is major resistance.

Key takeaways

The higher-end shoe brands are having trouble with pricier shoes and decreasing margins, as well as increased operating costs due to increased inventory due to lower sales. Nike's first fiscal quarter is in the middle of the year and has lower margins, so guidance will be more critical than earnings.

The firm has been pushing the direct-to-consumer approach to sell sneakers in China, and it has been having trouble with the shortage of inventory instead, which could be a good thing in a
slowing demand market.

Nike is expected to report similar sales to last year, but earnings are seen falling by around 20% mostly due to compressed margins. Investors could be reassured by comments the CEO might make about handling costs.