Nike Earnings Preview: Lower Expectations

Can the company beat estimates and break its recent stock price downtrend?

• Nike will report quarterly earnings on March 21 after the stock market closes at 3:15 p.m. CDT.
• After last quarter's Nike earnings announcement, the company’s stock dropped 10%, missing revenue estimates but beating earnings-per-share (EPS) estimates by over 20%.
• Nike is expected to report EPS of $0.75 on $12.29 billion in revenue on Thursday.
• Focal points for this earnings call will likely be cost cutting initiatives and growth opportunities for 2024.

Nike earnings preview

Nike (NKE) is down $8.00 from the opening 2024 print of $107.61, but that doesn't tell the whole story. Just before the new year, Nike reported quarterly earnings, and the stock price dropped from $123 to $107.45 overnight after Nike missed revenue estimates. The stock is currently trading at just under $100 per share.

Nike executives provided some insight into the company's future in the previous earnings release:“"The Company is identifying opportunities to deliver up to $2 billion in cumulative cost savings over the next three years. Areas of potential savings include simplifying our product assortment, increasing automation and use of technology, streamlining our organization, and leveraging our scale to drive greater efficiency.

Most of these savings will be used to fuel growth, accelerate innovation at speed and scale, and drive greater long-term profitability.

As part of this commitment, the company is taking steps to streamline the organization, which is expected to result in pre-tax restructuring charges of approximately $400 million to $450 million that will largely be recognized in the third quarter of fiscal year 2024, primarily associated with employee severance costs. Revised guidance will be provided on the conference call."

Earnings expectations for Nike have been reduced this week, with a smaller EPS at $0.75, compared to a reported $1.03 last quarter. Revenue estimates are also down over $1 billion, at $12.29 billion, compared to a reported $13.39 billion last quarter.

With NKE stock just under $100, the expected move this week based on current implied volatility is quite high at +-$6.73, just over 6% of the current stock price. Looking farther into the future, we can see the May 2024 options expiration cycle has an expected move of +-$8.92, which means this earnings call makes up a massive chunk of the expected move through the next few months. Looking to the end of the year at the December 2024 options cycle that has just a +-$18.93 expected move, we can see just how much weight the market is placing on Nike this earnings call.

Bullish on Nike for earnings

If you're bullish on Nike, you believe the company will exceed the lowered EPS and revenue expectations for the quarter, and express positivity in the conference call. It will be interesting to see if they can shed light on progress made for the planned $2 billion in cost savings over the next few years because it seems the iconic brand is running out of wiggle room for failure after last quarter's earnings miss and greater than expected stock price drop.

Bearish on Nike for earnings

If you're bearish on Nike, you may believe that not much has changed in a few months and there's a decent chance the company will miss on EPS and/or revenue estimates as consumers continue to cut costs as inflation runs rampant. Lowered earnings expectations doesn't always translate to earnings beats, and if the company misses on either mark it would not be surprising to see the recent rally reverse.

Tune in to Options Trading Concepts Live on Thursday, March 21, at 11 a.m. CDT for some options strategies ahead of the Nike earnings call!

Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb

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