Tuesday, September 22, 2020

Nike Shares Tumble Ahead of Q1 Results

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What’s happening: Nike Inc is all set to report its earnings results for the first quarter after the closing bell on September 22, 2020.

What happened: Although Nike’s shares gained around 20% in August, investor sentiment has been muted this month. The stock has been on a downturn over the last four trading sessions.

The pandemic has not only impacted the demand for apparel and footwear, but also led to store closures. Nike, along with its wholesale partners, was forced to close most of its stores. In July, Nike announced layoffs that would allow it to save $200-$250 million with the aim of focusing on its digital business.

With people now beginning to come out of their homes, Nike is expecting a strong turnaround in its business.

What are the expectations: The athletic wear company is expected to report a decline in both sales and earnings for the first quarter.

  • Revenues are expected to decline by 14.4% from the same quarter last year to $9.12 billion.
  • Earnings are projected at 49 cents per share, representing a 43% year-over-year decline.

Why it matters: Various sports leagues have been cancelled or postponed due to the pandemic, resulting in Nike losing a significant opportunity to showcase its sports products being worn by players like Lebron James. 

For the previous quarter, Nike has reported a 38% year-over-year decline in revenues. However, with various countries reopening their economies last quarter, the company’s revenues are likely to have recovered to some extent.

Nike’s continued focus on strengthening its digital presence is also expected to have lifted sales in the first quarter.

The company had reported an increase in inventory levels in the previous quarter. Although Nike is likely to have lowered inventories since then to adjust to the weakening demand, it may still need to find the right balance.

Meanwhile, Nike has launched several new products, including its highly anticipated maternity collection and its ecofriendly Space Hippie shoe. The company is also set to launch its LeBron 18 signature shoes.

How shares performed so far: Nike shares declined by 1.1% to $113.37 in regular trading hours on Monday. The company’s stock has gained around 18% in the last three months.

What to watch: Investors will focus on management’s comments around changes in consumer buying behaviour. Although gyms are closed in several locations and people are still reluctant to go to gyms wherever they have reopened, there has been an increase in alternative exercising options amid the pandemic. Markets will be curious to know the impact of these changes on the company’s results.

The Markets Today

     

European stocks will be in focus today, ahead of the region’s consumer confidence report.

Context: European stocks closed sharply lower on Monday, as market sentiment took a hit following reports of money laundering by various banks. Rising covid-19 cases across the continent also sent stocks lower.

Details: Several lenders around the world were named in the movement of a large amount of suspicious funds, according to media reports over the weekend. Shares of Standard Chartered and HSBC fell more than 5% each following the reports.

Stocks also tumbled on fears of a second wave of covid-19. Britain’s top scientists issued a warning that the country may witness around 50,000 new coronavirus infections daily in mid-October, if no steps were taken to control the virus.

Meanwhile, shares of United Internet plummeted around 24%, after the Germany company cut its guidance. Rolls-Royce’s stock lost around 11% after the company announced plans to raise £2.5 billion.

The pan-European Stoxx 600 index tumbled 3.2% on Monday, with banks leading the decline, down by 5.7% in the previous session. London’s FTSE 100 dropped 3.4%, German DAX 30 lost 4.4% and French CAC 40 declined by 3.7%.

What to watch: Markets await consumer confidence data from the Eurozone, which is expected to improve slightly to -14.8 in September, from a reading of -14.7 in August.

Investors will keep an eye on the covid-19 numbers, with infections surpassing 31 million globally.

Other Markets: US indices closed lower on Monday, with the Dow Jones index, S&P 500 and the Nasdaq 100 down by 1.84%, 1.16% and 0.13%, respectively.

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What else to watch today

     

South Africa's SACCI business confidence index, UK’s CBI industrial trends orders, Brazil’s federal tax revenues and BCB’s Copom meeting minutes, Argentina’s GDP growth rate as well as the US Redbook index, existing home sales, Richmond Fed manufacturing index, API’s crude oil stocks and Fed Chair Powell testimony.