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Nike FY2018 Q1 Report Tomorrow | My Predictions

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What’s to blame for the expected earnings decline in the athletic apparel and shoe giant? A couple of key factors, say experts.

Source: Nike Earnings Due: Here’s Everything Wrong With The Iconic Brand

I follow Elaine Low on Twitter. As a writer for Investor’s Business Daily she provides insight into how analysts are preparing for quarterly reports and making predictions on how the market will shift.

As much as I respect the work she does, and I’m by no means a stock market source, I do hate that she has so readily delivered the information from Matt Powell on adidas and that the people who deliver information to portfolio holders are spreading half truths. I wrote this post last week:

Why You Should Question NPD’s Data About adidas Overtaking Jordan Brand

In this post I explained in detail why people looking to Nike inventory and the slow down in RETAIL sales as a reason for an impending report that Nike has performed poorly, will be wrong. Powell does not have data directly from Nike. The only information that has any bearing on Nike’s Q1 is the promotional environment retail is in.

This is the problem with relying on the promotional environment. Nike is not relying heavily on Futures. In other words the brand has reduced the number of wholesale accounts to the extent that in their recent Shareholders meeting they didn’t even discuss Futures. As a matter of fact at the end of Q4 2017 Futures weren’t even listed in the reports at all. What was readily available in the shareholders meeting was the impact that the Consumer Direct Offensive has had on the company. 70% growth.

NIKE, Inc. 37th Annual Shareholders Meeting 2017 | Key Points Transcribed

In other words what Wall Street seems to be missing is the most important information available to them, Nike DTC. Here is a scenario.

  1. Nike sells 10 pair of shoes wholesale for 50.00 to retail outlets. That’s 500.00 or really 50.00 dollars since the shoes cost Nike 45.00 dollars to make.
  2. I keep 10 pair of shoes and sell them through my e-commerce and physical store locations. My own platform sells through the inventory. That’s 1000.00 or 550.00 dollars. Which margins are better?
  3. The store locations sell 50% of their inventory, but the rest of the shoes are sitting on shelves marked down. They eventually have to be RTV’d. Nike takes those shoes back and places them into 1 of the 980+ locations they have (which is 300 more stores than Finish Line and a third of the stores that Foot Locker has). The shoes come back to Nike Clearance. Nike sells the shoes at 65.00 per pair. They clear 20.00 per pair. It should be noted that Nike opened almost 100 stores since last year and that sales data isn’t readily available.

Is retail this simple? No, but it really is this basic. Nike’s e-commerce platform garners 77 million visitors every month. The closest retail outlet selling sports shoes is Foot Locker with around 30 million visits on 5 different platforms!! (Champs, Eastbay, Foot Locker, Footaction and Kids Foot Locker). Nike is also the top performing footwear on Amazon.

What Do I Expect from Nike Tomorrow?

2017 Q1 –

  • Revenues up 8 percent to $9.1 billion; 10 percent growth excluding currency changes*

  • Diluted earnings per share up 9% to $0.73 compared to prior year

  • Worldwide futures orders up 5 percent; 7 percent growth excluding currency changes

  • Inventories as of August 31, 2016 up 11 percent

FY2018 Q1 –

Revenues will be up. How can I say this when there were factors last year that helped growth? Growth in 2017 Q1 last year was assisted by the Olympics. Without the Olympics and with a slow Back to School, Q1 shouldn’t show any gains, but it won’t be a loss either. Below is why I think FY2018 Q1 will be better than expected.

In the last year Nike’s Consumer Direct generated 70% growth. This will offset the decrease in Futures. Futures won’t be reported so the decrease there will be seen in inventories. What I’m predicting is that inventories will decrease 1% from last year although BTS and no Olympics is a factor. I don’t think the Olympics really generated that strong of a push in footwear and apparel. Where will inventories be? 10%. Inventories will decrease because Nike has been very effective at utilizing their retail outlets to move sale items and RTVs. New releases on the Nike e-commerce platforms perform very well (SNKRS and NDC).

I expect revenues to be up around 9.2 billion, but the margins will decrease because of promo. Nike Inc. grew to 34.4 Billion in the last year this is with the decrease in Futures. I think the DTC push has been much bigger than analysts understand and will show that while adidas has been taking away retail marketshare, Nike remains a very strong brand due to growth through their own retail.

I am not an analyst and my predictions are purely for the website. It should be an interesting day tomorrow.