Will World Cup Fever Fuel Nike Earnings Or Will Higher Ad Costs Hold Them Back

Will World Cup Fever Fuel Nike Earnings Or Will Higher Ad Costs Hold Them Back

Nike Inc. (NKE) is set to report FQ4 2014 earnings after the market closes on Thursday, June 26th. Nike is one of the most iconic sports gear and athletic wear brands on the planet. The famous sportswear brand may not be an official sponsor of the World Cup, but Nike is still hoping the buzz in Brazil will drive higher sales. One of Nike’s main competitors, Adidas, spent an estimated $100 million to use the official World Cup logo in its commercials.

Nike may not be using the official FIFA World Cup emblem in its ads, but that’s not stopping the company from advertising its soccer products heavily through commercials featuring some of the most popular players on the planet including Neymar and Cristiano Ronaldo. This quarter Wall Street expects Nike’s earnings to remain flat compared to last year while sales increase by nearly 10% on a year over year basis. However, investors are expecting Nike to outperform Wall Street’s expectations on Thursday afternoon. By tapping into a wider range of contributors including hedge fund analysts, asset managers, independent research shops, students and non professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Here we are seeing a moderate to large differential between the two groups’ expectations compared to previous quarters. This quarter we’re seeing a relatively wide range of estimates on Nike’s EPS compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings. A wide range of earnings estimates signals less agreement in the market, which could mean greater volatility post earnings.

Over the past three months, the Wall Street consensus fell from $1.03 to 95 cents while the Estimize consensus declined from 98 cents to 95 cents. Meanwhile the Wall Street revenue forecast sank from $7.521B to $7.346B while the Estimize sales consensus dropped from $7.528B to $7.411B. Timeliness is correlated with accuracy and the directionality of analyst revisions at the end of the quarter are often a leading indicator. In this case we see marginally increasing revenue estimates going into the report.

Among 46 analysts with at least two estimates scored on Nike, anmikyoso has been the most accurate with an average of 14.25 points per estimate. Points are scored by analysts for making estimates that are more accurate than the Wall Street consensus. anmikyoso is a student who is ranked 38th overall among over 4,550 contributing analysts. This season anmikyoso has been more accurate than Wall Street in forecasting EPS and revenue 82% and 55% of the time, respectively, throughout 11 estimates.

Last quarter Nike posted great results beating the Wall Street earnings consensus by 3 cents per share and $154 million in sales. This period the Estimize community is expecting another healthy report from Nike and predicting the sports gear and athletic wear company will beat the Wall Street forecast by a comfortable margin.

In calendar 2013 Nike reported $1.9 billion in soccer related sales, and that number is expected to be boosted this year by World Cup hype especially between FQ4’14 and FQ1’15. While higher sales are predicted, advertising costs are expected to rise too as a result of the push to promote Nike products during the World Cup. On Thursday, the bottom line will be the number to watch, but it’s reasonable to expect that advertising costs will continue to pay off with elevated soccer sales into the next quarter as the world continues to watch the tournament in Brazil.

Nike Still Has More To Offer Its Shareholders

Nike Still Has More To Offer Its Shareholders

Nike Inc. (NKE) is the world’s leading designer, marketer and distributor of athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. As the world’s leading athletic apparel innovator the company’s stock has increased by more than 45 percent over the past year and approximately 238 percent over the past five years. The company has still managed to maintain its leading position and released its third quarter earnings on March 20th showing that it beat analysts’ estimates. The emphasis of this report is on the recent performance of the company and the future growth prospective of the company to decide whether or not the company retains its leading position in the future.

Nike Grew Globally in Recent QuarterNike reported its third quarter revenue of $7.0 billion reflecting an increase of 13% from the same quarter in 2012 and beating analysts’ estimate of $6.69 billion. Third quarter earnings per share were $0.76 also beating analysts’ estimates of $0.72 per share. Other indicators were also moving in the right direction as gross margins improved 30 basis points to 44.5%, and future orders increased 14% on a currency neutral basis to $10.9 billion. In addition, Nike repurchased $788 million worth of shares in the quarter helping to reduce the number of shares outstanding.

The increase in revenues was basically driven by Nike’s overall growth in its major regions. Nike brand sales in North America were up 12% to about $1.9 billion, sales in Western Europe were up 22% to about $1.3 billion, sales in Central and Eastern Europe were up 17% to $356 million, sales in China were up 9% to 697 million and sales in emerging markets were up 8% to $937 million. Japan is the only region where Nike sales declined by 9% to $177 million.

Growth Backed by InnovationNike’s growth was fueled by the company’s steadfast focus on bringing innovation to the market. Nike has recently introduced the new standard in performance football boots, the “Magista.” With the radical new silhouette the boot is designed to enhance the player’s fit, touch and traction for a game. The Magista soccer cleat is a big deal for Nike and appears truly capable of changing the way that players play soccer on a professional level and when this occurs on a global stage, like the World Cup, it only reinforces Nike’s dominance in the minds of consumers and strengthens the company’s control of the international market.

2014 World Cup and 2016 Olympics Would Make the Brazilian Unit the Third Largest Market for NikeThe FIFA World Cup is the most watched sporting event in the world. It is expected that billions of people will be watching when the quadrennial world championship of soccer unfolds in June in Brazil. The biggest footwear and apparel brands in the game are already rolling out products and preparing product activation plans for the World Cup. Nike and its close competitors Adidas are both confident that the World Cup’s rising tide will help to increase overall footwear and apparel sales. Nike is set to supply the kits for more teams than Adidas for the first time ever at this year’s World Cup. In addition, Nike’s sponsorship of the host’s national football team alone gives it a massive competitive edge that will be difficult for Adidas to close the gap on.

In the next two years by the time the 2016 Summer Olympics arrive the Brazilian unit will probably represent the third largest market in the world behind the US and China. Nike currently had a 12.1 percent share of the Brazilian market compared to Adidas’ 5.5 percent share and it is estimated that Brazil’s general sportswear market will grow by $1.4 billion, or 12.5 percent, in this year alone.

Capitalize on the Changes in Consumer BehaviorThe impacts of e commerce and increasing advances in technology have created drastic changes in consumer spending habits. Consumers are moving away from physical purchases to various forms of digital spending. To capitalize on this trend Nike has been aggressively building its e commerce business over the years. The segment grew its revenue by 32% and reached at $540 million in fiscal year 2013. It is expected that the company will grow to $2 billion by the end of fiscal year 2017. However, there is still substantial room for growth as e commerce only represents 15% of Nike’s total direct to consumer business. Nike will also begin selling online in Japan and Brazil and that will definitely boost the company’s sales, especially in Brazil where the FIFA World Cup will begin in June.

ConclusionThe company has consistently outperformed and once again beat analysts’ estimates on revenues and earnings per share. Moreover, the FIFA World Cup and Olympics will boost the company’s market share in Brazil and the international market and will ultimately improve the company’s top and bottom lines. The company is also improving the online channel to capture consumer trends in digital spending. Since the company has quite a decent outlook I would recommend buying the stock.

Source: Nike Still Has More To Offer Its Shareholders

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More.)

Business relationship disclosure: The article has been written by APEX Financial Consultants. This article was written by one of our research analysts. APEX Financial Consultants is not receiving compensation for this article (other than from Seeking Alpha). APEX Financial Consultants has no business relationship with any company whose stock is mentioned in this article.