Nike (NYSE: NKE) will post its fiscal fourth-quarter earnings results after the market closes on Thursday, June 29. Here are a few big-picture trends for investors to watch for in the report.
Continue Reading Below
Growth in the U.S. market
First, keep a close eye on the U.S. market. Sales there are up by less than 4% over the past nine months, which represents a dramatic growth slowdown for the retailing titan. At the same point last year, revenue had improved by a much healthier 10%.
Nike executives blamed the shortfall on a sudden and fundamental shift in how customers are shopping for shoes and sports apparel these days. Specifically, they're doing much more browsing online and cutting back on the trips to their closest mall-based retailer. "The customer has decided digital isn't just a part of the shopping experience, digital is the foundation of it," CEO Mark Parker told investors back in March.
The e-commerce shift not only pushed sales growth down but also sent profit margins lower over the past few quarters as retailers discounted heavily to clear out slow-moving inventory. The good news for Nike is that, unlike rival Under Armour (NYSE: UA) (NYSE: UAA), it gets a huge portion of revenue outside of the U.S. market, where e-commerce is a smaller factor. That helps explain why its sales and profit slowdown hasn't been nearly as dramatic as Under Armour's slump.
Over the short term, profitability in the U.S. geography should bounce back quickly now that inventory levels are better matching up with demand trends. Gross margin slipped by over a percentage point last quarter, but inventory also fell by 8% over that time. The leaner retailing position has Nike's management optimistic that profits will begin expanding again as early as the fiscal fourth quarter. Any improvement over the prior quarter's 3% revenue growth pace, meanwhile, would confirm that operating trends have stabilized in Nike's most important market.
Continue Reading Below
Rebound plan and outlook
Nike's futures orders declined by 4% last quarter and, while this metric isn't a perfect indicator of sales growth, the slump suggests the company might be limping into its new fiscal year. If Under Armour's latest results are any indication, the selling environment isn't improving so far. Revenue rose at just a 7% clip for Under Armour in the March quarter, and the company expects sales to rise by between 11% and 12% for the full year, or about half its 2016 expansion pace.
That's why investors will focus plenty of attention on Nike's full-year 2018 forecast this week. Executives offered a few clues to this outlook back in March when they said they're targeting revenue growth across all geographies, with the U.S. taking a back seat to international segments -- particularly China.
On finances, Nike plans to cut costs wherever it can to keep earnings growth on a strong pace but also aims to invest aggressively in key growth initiatives like speeding up product innovation and building out its e-commerce infrastructure.
Overall, management will likely project significant improvements in operating and gross profitability on Thursday. However, a weak U.S. retailing industry and major foreign exchange pressures might lead Nike to promise another slight slowdown in annual sales gains.
10 stocks we like better than Nike
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Nike wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of June 5, 2017
Demitrios Kalogeropoulos owns shares of Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.