Photo by wu yi on Unsplash

Nike is scheduled to report earnings after the market closes on Monday

Nike (NKE) is scheduled to report the results of its fourth fiscal quarter after the market closes on June 27, with a conference call scheduled for 5:00 pm ET. What to watch for:
 

1. Guidance: In March, Nike backed its fiscal 2022 revenue view of up mid-single digits, with an effective tax rate in the low teens. At the time, the revenue consensus was $46.9B, but that has since ticked slightly lower to $46.62B. At the time, Nike predicted revenue would decline in North America in the fourth quarter, with improvement in China.

Cowen analyst John Kernan previewed Nike's Q4 results and noted there are market concerns that Nike might issue initial FY23 guidance well below sell-side estimates but believes any weakness will create a buying opportunity based on valuation. Deutsche Bank analyst Gabriella Carbone anticipates Nike's Q4 EPS to miss consensus, largely driven by soft results in China, and is now modeling revenues for China of $1.74B, below the Street's $1.82B estimates, the analyst tells investors. UBS analyst Jay Sole expects the company's FY23 guide to imply EPS in the $4.10-$4.30 range, which should clear the market's "bar" for the event as investors expect the implied forecast to be below $4.00.

Meanwhile, Barclays analyst Adrienne Yih also expects the Q4 results and Q1 outlook to be "materially impacted" by the lockdowns in China. With tough compares against 2021 and the lockdowns in April and May, Nike's Q4 will be "materially pressured," Yih tells investors in a research note.
 

2. Russia Exit: Nike plans to fully exit Russia, the company told Reuters last week, as the pace of Western firms departing accelerated, Reuters' Praveen Paramasivam, Supantha Mukherjee, and Mimosa Spencer reported. Nike is making a full exit from Russia three months after suspending its operations there, the sportswear maker said. Foreign companies seeking to exit Russia over the war in Ukraine face the prospect of a new law being passed in the coming weeks allowing Moscow to seize assets and impose criminal penalties.
 

3. Global Trends Likely Worse Than Expected: Credit Suisse analyst Michael Binetti thinks Nike's global trends were likely worse than expected in Q4 due to much tougher China lockdowns than the company implied in its guidance. That said, while his checks show that the global supply chain remains very tough, consumer demand for the brand remains very strong, and he believes Nike has been pushing harder to get inventory out to end markets in the U.S. and Europe to help offset transitory sluggish China trends in the quarter.

Guggenheim analyst Robert Drbul believes Nike is prone to prolong negative COVID-related lockdown effects in China and now estimates that sales in the region will be down 35% from last year's levels and he has reduced his FY22 and FY23 EPS estimates to account for a more conservative outlook on Nike's higher-margin business in China.
 

4. Risk To Q4 Results, Outlook: Citi analyst Paul Lejuez said the firm's recent survey of 1,000 Chinese consumers suggests a more promotional environment and that consumers showing more price sensitivity amid pressure on disposable income. A survey of 1,600 North America consumers suggests few changes in the promotional environment though more consumers indicated disposable income pressure, Lejuez tells investors in a research note. He cut Q4 and 2023 estimates for Nike to reflect China lockdowns and changes in currency.
 

5. Long-Term Opportunity 'Intact': On June 15, Morgan Stanley analyst Alex Straton assumed coverage of Nike with an Overweight rating and price target of $159, down from $192. He believes a Q4 EPS miss is likely coming, but adds that he thinks the market expects an EPS miss and FY23 guidance below the current consensus. Though he doesn't expect any resolution on the China debate in the near term, which means investors likely continue to wonder when Nike will return to delivering on its long-term targets, Straton thinks the long-term opportunity remains intact.