Earnings Preview: Nike, Finish Line

The Beaverton, Ore.-based athletic giant reports its fourth-quarter results on Thursday after the market close.

Analysts are bullish and expect the firm to earn $1.37 a share on revenue of $6.52 billion, as polled by Yahoo Finance.

Mitch Kummetz, analyst at R.W. Baird & Co., said these estimates are “achievable given the strength of Nike’s futures orders,” which are expected to be up 18 percent.

“We expect solid results on continued strength in the important running and basketball categories,” he said. “Moreover, in the U.S., we remain bullish on the outlook for the performance athletic segment. We acknowledge certain headwinds in Europe and China, but those could prove to be a buying opportunity, as Nike appears to be relatively well positioned in those markets.”

Sam Poser, analyst at Sterne Agee, wrote in a research note, “The innovative pipeline at Nike appears to be second to none, and we believe that the many upcoming events will continue to drive first-class results. Historically, Nike has outperformed in Olympic years.”

Poser also noted that investor concern over economic woes in Europe and weakness in Asia “are overblown. The weaker-than-expected results from some Chinese athletic companies were likely caused by the innovative power of both Nike and Adidas.”

Finish Line reports its first-quarter results on Friday before the market opens. On May 30, at an investor meeting, the firm raised its guidance, calling for earnings per share to come in between 22 and 23 cents, on the back of a comparable-store sales increase of 8.5 percent.

Accordingly, analysts, as polled by Yahoo Finance, also expect the Indianapolis-based firm’s EPS to come in at 23 cents, on revenue of $320.7 million.

Camilo Lyon, analyst at Canaccord Genuity, wrote in a research note, “We are not expecting any surprises when full first-quarter results are released. We will be focused on quarter-to-date comp trend commentary, with June [being] the toughest second-quarter monthly comparison.”

He added, “We will also look for any early reads from the technology investments [the firm] is making and the expected comp lift associated with them, particularly from the store remodels.”

Christopher Svezia, analyst at Susquehanna Financial, said, “We [are concerned about] limited near-term growth as the company invests heavily for the future. The company is clearly going all-in to revamp its store base, expand its digital presence and expand specialty running. While we believe this strategy will eventually bear fruit, it is hard to ignore the operating margin compression expected over the next year. We would like to see more of the solid top-line growth flow to the bottom line given a lack of visibility to the return on current investments.

Svezia’s EPS expectation of 23 cents is based on the assumption of a 6.5 percent sales growth, a 150 basis-point gross margin decline, and a 140 basis-point reduction in selling, general and administrative expenses.

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