Nike Earnings Preview: Digital Takes the Lead in Q2 & Beyond

As Nike Inc. prepares to report second-quarter earnings on Thursday, analysts are keeping a close eye on whether the sportswear giant can keep up its momentum despite trade headwinds and heavy competition from athletic rivals.

The Swoosh’s digital business is expected to come into focus, as Nike continues to invest in its Direct strategy, the rollout of its apps to other regions and its partnerships with e-commerce platforms, such as China’s Tmall and WeChat services. The firm has also ramped up its strategic acquisitions, including the purchase of NFL star Russell Wilson’s TraceMe startup with a built-in sports-prediction service.

Following a solid earnings beat in the first quarter, market watchers are betting on Q2 earnings per share of 58 cents, compared to last year’s 52 cents, and revenues climbing 7.2% to $10.08 billion. Susquehanna Financial Group analyst Sam Poser forecasts EPS in line with Wall Street, along with expectations of a 7.7% increase in sales. He was also upbeat on Nike’s North America business, predicting sales gains of 8.2% in the next quarter.

“Nike’s momentum across geographies, categories and channels is strong,” he wrote in a distribution note. “Digital prowess, increasing speed-to-market capabilities, a robust product pipeline and improved offerings in the moderate and better channels are driving top-line growth and margin expansion.”

Q2 also marks the final full period in which Mark Parker serves as Nike’s CEO. On Oct. 22, the Beaverton, Ore.-based firm announced the impending departure of its longtime chief come January, when former eBay CEO and Nike board member John Donahoe will take the helm. Parker will remain in the role of executive chairman.

The move, according to Poser, signals a new direction for the brand as it steps up its digital-focused efforts. “We believe Mr. Parker and the Nike board were prescient enough to recognize that digital will drive the future, and that someone with a strong consumer-facing digital background, knowledge of and engagement with Nike was needed,” he said.

For the quarter, Wedbush Securities analyst Christopher Svezia expects an even higher EPS of 59 cents. He pointed out Nike’s continued expansion in China as well as the launch of its app in Europe, the Middle East and Africa as bright spots for the Swoosh.

“In the end, Nike’s merchandise, marketing and distribution strategies resonate with consumers globally,” he added, “as the company also drives industry innovation and adeptly creates or captures incremental opportunities for the future.”

At Cowen, analyst John Kernan noted that Nike’s top sellers included the AirMax 270 for women, while LeBron James’ namesake collection as well as Jordan Brand have helped boost the basketball category for men.

For the period ended Aug. 31, the Swoosh posted first-quarter diluted earnings per share of 86 cents, which represents a 28% gain from the previous year and above analysts’ expectations of 71 cents a share, while profits rose 25% to $1.4 billion. Revenues increased 7% to $10.66 billion, ahead of Wall Street’s predicted $10.43 billion.

Sales at its flagship brand climbed 10% to $10.1 billion, driven by growth in the Nike Direct and wholesale channels as well as Jordan Brand, plus continued growth across footwear and apparel merchandise. Converse also saw a sales boost of 8% to $555 million, though its double-digit gains in Asia were offset by a decline in its U.S. home base.

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