Market Watch: Nike to Report Cup Impact… Finish Line’s Q1

Market Watch: Nike to Report Cup
Cristiano Ronaldo showcases Nike’s latest kit for Portugal.

The Week Ahead

Monday, June 23:
Chicago Fed national activity index for May

Tuesday, June 24:
U.S. consumer confidence index for June
U.S. new home sales for May

Wednesday, June 25:
GDP revision for Q1
U.S durable goods orders for May

Thursday, June 26:
Nike Inc. Q4 results
U.S. initial weekly jobless claims
U.S. continuing weekly jobless claims
Consumer spending for May
Personal income for May

Friday, June 27:
Finish Line Inc. Q1 results
U.S. consumer sentiment index for June

Stock Watch

With the 2014 FIFA World Cup in full swing, investors will be looking for commentary about the impact of the sporting event on sales and futures orders during Nike Inc.’s fourth-quarter earnings report on Thursday.

Analysts expect the company could beat the Street’s forecasts for a more than 10 percent sales bump in the quarter, to $7.34 billion, on diluted earnings per share of 74 cents.

“Nike sales often strongly outpace futures around major sports events,” said Jay Sole, a Morgan Stanley analyst. He noted that leading into the last three major global athletic events — the Beijing Olympics, South Africa World Cup and London Olympics — Nike’s revenue growth outpaced futures growth for four quarters following the respective events.

“If Nike’s historical futures and sales patterns repeat, the company could deliver 13 percent year-on-year revenue growth ex-foreign exchange [effect], versus our 12 percent estimate and the Street’s 11.5 percent,” Sole added.

Baird Equity Research analyst Mitch Kummetz said he believes Nike benefited from the strong athletic cycle and its investment in innovation throughout the period.

“We see a potential upside to Nike’s plan for fourth-quarter sales given the end-of-third-quarter futures orders position and strong underlying athletic trends during the quarter,” he said.

Kummetz predicted Nike could post double-digit futures orders, but below the 14 percent booked in the third quarter. That compares with 8 percent in the fourth quarter last year.

“Nike didn’t call out the World Cup as a driver of end-of-third-quarter futures, but it also didn’t highlight the World Cup as a driver four years ago. However, we know that the World Cup impacts futures orders because Nike noted the tough World Cup comparison when it reported end-of-third-quarter 2011 futures,” he said.

While the world remains glued to the unfolding tournament in Brazil, UBS analyst Michael Binetti is looking for an update on Nike’s China business

“We believe Nike is nearing a long-awaited turning point in its important China business,” Binetti said.

“[Our] China contacts note that same-store sales growth for global athletic brands has accelerated significantly lately, markdown support from brands is normalizing — versus several years of elevated support to clear inventories — [and] spring ’15 orders are planned significantly positive after nearly two-years of managing inventories lower,” he added.

China is Nike’s highest-margin business and a key part of its fiscal 2017 revenue target of $36 billion, Binetti said.

Meanwhile, on Friday all eyes will be on Finish Line Inc., as analysts expect the company will post sales of $394.2 million on EPS of 21 cents for the first quarter of fiscal 2015.

“The marquee basketball business continues to strengthen, and Finish Line’s allocation of such products is improving,” said Sterne Agee analyst Sam Poser.

“Nike running is performing well and taking market share, which is beneficial to Finish Line given its strong leverage to the brand,” he added, noting that the retailer’s shop-in-shop initiative with Macy’s will be a revenue and EPS growth catalyst going forward, largely due to its focus on the female consumer and brands such as Skechers, which are not typical to Finish Line stores.

“The profitability from the Macy’s venture will be the result of levering store labor and driving sales through Macys.com where more integration is needed,” Poser said. “The product mix continues to improve.”