By Spencer Jakab
You just know they're gonna do it.
Even with a world suddenly in turmoil, Nike Inc. is likely to
leap over earnings expectations yet again on Thursday, which would
be the 28th time out of the past 30 quarters. What happens after
Nike unveils fiscal second-quarter earnings may be another matter,
though. Its shares have stumbled, sometimes badly, in the trading
session following earnings releases a little over one-third of the
time during that span.
The hurdle certainly looks impressive. Analysts polled by
FactSet see Nike earning 70 cents a share for the period ended Nov.
30 compared with 59 cents a year earlier. That comes after earnings
per share rose by 27% in the first quarter.
But then, Nike's rising share price signifies some world-class
expectations, too. In the past three months it has beaten the
S&P 500 by 15 percentage points and rival Adidas AG by 20
points. The stock trades at a 47% premium to its 10-year average
multiple of debt-adjusted market value to earnings before interest,
taxes, depreciation and amortization.
While Nike's sportswear seems to be as hot as ever and its
technology keeps giving competitors more than a run for their
money, global economic woes matter. Even following its first fiscal
quarter, which ended in August, Nike mentioned challenging
conditions in Mexico and Brazil and currency pressure in Russia,
Turkey and Argentina.
Those countries and their currencies are looking weaker--in some
cases far weaker--today. Operating income from Central and Eastern
Europe and other "emerging markets," which excludes Nike's key
Chinese market, was greater than all its earnings from China in the
first quarter. And the two regions were off by 16% and 26%,
respectively, versus the same period a year ago.
As with every sales region outside Japan, the company foresaw
decent growth in emerging markets. In September, Nike said its
"futures growth"--a measure of scheduled deliveries between
September 2014 and January 2015--was 11% in Central and Eastern
Europe, for example. But that projection assumed stable exchange
rates. Russia, which makes up a big chunk of that, has seen its
currency plunge and gyrate wildly.
Nike has had a great run but a pause for breath seems in
order--particularly at this altitude.
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