NIKE Inc. (NKE - Free Report) is slated to release first-quarter fiscal 2024 results on Sep 28. The leading sports apparel retailer is likely to have witnessed top-line growth in the fiscal first quarter, while its earnings per share are expected to have declined year over year.

The company has been gaining from its Consumer Direct Acceleration strategy, along with strong demand, compelling products, and robust performance in its digital and DTC businesses. Supply-chain constraints, continued weakness in Greater China and higher costs have been weighing on its bottom-line performance.

The Zacks Consensus Estimate for fiscal first-quarter revenues is pegged at $13 billion, suggesting 2.3% growth from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for the company’s fiscal first-quarter earnings is pegged at 73 cents per share, suggesting a decline of 21.5% from the year-ago reported number. Earnings estimates for the fiscal first quarter have been unchanged in the past 30 days.

In the last reported quarter, the company delivered a negative earnings surprise of 1.5%. Its bottom line beat the consensus estimate by 20.9%, on average, over the trailing four quarters.

NIKE, Inc. Price and EPS Surprise

NIKE, Inc. price-eps-surprise | NIKE, Inc. Quote

Key Factors to Note

NIKE is expected to have witnessed continued gains from brand strength, robust consumer demand and an innovative product pipeline in the fiscal first quarter. Gains from its Consumer Direct Acceleration strategy, and robust digital and DTC performances are expected to have been other tailwinds.

Continued strength in retail traffic trends within NIKE Direct has been boosting conversion rates. The strong member buying trends are likely to have led to a record digital performance in the to-be-reported quarter. Strength in the North America, EMEA and APLA regions, fueled by increasing traffic, higher conversion and growth in average order value, is likely to have aided sales in the to-be-reported quarter.

The NIKE Direct business has been benefiting from robust growth across regions and an efficient digital ecosystem, which comprises its online site, and commercial and activity apps. Revenues at NIKE-owned stores are expected to have gained from improved traffic, higher conversion rates and growth in average order value. The NIKE Direct business is likely to have benefited from growth in North America, EMEA and APLA, offset by continued weakness in Greater China in the to-be-reported quarter.

We expect total NIKE Brand revenues to increase 1.9% year over year to $12,272.7 million in the fiscal first quarter, driven by 1.6% growth in Direct-to-Consumer and a 2% rise in the Wholesale business.

On the last reported quarter’s earnings call, management predicted flat to low-single-digit revenue growth for the fiscal first quarter.

However, NKE has been witnessing a decline in the gross and operating margins due to rising costs, higher markdowns, increased freight and logistics costs, elevated input costs, and currency headwinds. Also, elevated SG&A expenses are concerning.

On the last reported quarter’s earnings call, the company predicted a sequential improvement in the gross margin for the first quarter of fiscal 2024. It anticipated the gross margin to be down 50-75 basis points (bps) on a reported basis, whereas it reported a contraction of 140 basis points (bps) in fourth-quarter fiscal 2023.

NIKE has been witnessing elevated SG&A expenses, driven by increased demand creation expenses due to the normalization of sporting activities and overhead costs related to higher wages. Demand-creation expenses are likely to have increased in the fiscal first quarter, owing to elevated marketing and advertising investments. These investments are likely to have supported significant global sports moments and product launches, and investment in capabilities to transform NIKE's operating model for greater speed and effectiveness.

Operating overhead expenses are expected to have resulted from higher wage-related expenses and NIKE Direct costs, as well as increased technology investments to support digital transformation in the to-be-reported quarter.

On the last reported quarter’s earnings call, management expected first-quarter fiscal 2024 SG&A expenses to grow in the low-double digits, owing to increased demand creation investments.

We anticipate the gross margin to decline 50 bps to 43.8%. Meanwhile, our estimate for SG&A expenses of $4,360.5 million indicates a year-over-year rise of 11.2%. Driven by the soft gross margin and higher SG&A expenses, our model suggests a 330-bps contraction in the operating margin to 10.1% in the fiscal first quarter.

Zacks Model

Our proven model does not conclusively predict an earnings beat for NKE this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

NKE has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell).

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