Normally, you’d expect the challenger to grow faster than the incumbent. But in the sportswear business, Nike Inc (NYSE:NKE) is showing the world who’s really boss. In 2015, NKE stock surged an impressive 31.2% from $45.75 to $62.34.
The best part is that Nike stock investors don’t seem to be worried about the challenger—Under Armour Inc (NYSE:UA). While UA stock also had a good run, its 18.7% return in 2015 is not as impressive as Nike stock.
NKE Stock: The One Number Nike Needs to Beat
If you are wondering how NKE stock achieved this kind of growth, just take a look at the company’s financials. In particular, Nike has a solid track record when it comes to earnings beats. In the last calendar year, the company beat Wall Street’s earnings estimates in all four quarters. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed March 22, 2016.)
Now, the sportswear behemoth is reporting earnings again. Here’s what analysts are expecting.
Overall, expectations are high. Analysts are forecasting revenue growth to be almost double-digit, which is no easy feat for a sports apparel and footwear company with a market cap of more than $100 billion. On the earnings side, analysts are equally optimistic, with the high estimate at $0.52 and the low estimate at $0.46.
Stats on Nike Inc
|Analyst EPS Estimate||$0.49|
|Change from Year-Ago EPS||8.9%|
|Revenue Estimate||$8.20 billion|
|Change from Year-Ago Revenue||9.92%|
|Earnings Beats in Past 4 Quarters||4|
Source: Yahoo! Finance
Just like before, markets will pay close attention to the headline number. If Nike manages to beat the $0.49 earnings-per-share (EPS) estimate this time, the stock could very well continue its upward trend.
Of course, there is a lot more going on besides earnings. And we shouldn’t stop at the headline numbers. One critical measure of the sportswear business is margins. In the past, Nike has done well when it comes to improving profitability and that’s how the company boosted its earnings.
In the previous fiscal quarter, Nike’s gross margin expanded by 50 basis points to 45.6%. The company said that higher average selling prices helped to boost margins, which were partially offset by higher input costs and foreign exchange headwinds. (Source: “Nike Inc Reports Fiscal 2016 Second Quarter Results,” Nike Inc, December 22, 2015.)
Tax rates would also affect how top-line growth translates to the bottom line. Nike managed to decrease its effective tax rate to 19.4% in the previous fiscal quarter. This was a significant improvement compared to the 25.4% tax rate in the year-ago period.
The Bottom Line on NKE Stock
Whatever the results turn out to be, keep in mind that Nike has something that few companies in the business can match: a solid track record of returning value to shareholders.
In the past 14 years, Nike has returned more than $23.0 billion to shareholders through stock buybacks and dividends.
Right now, the company is pursuing an $8.0-billion share repurchase program. Once completed, it would start a new four-year, $12.0-billion program. Nike also pays dividends with a 1.02% yield.
If today’s results turn out to be another earnings beat, don’t be surprised when NKE stock spikes gain.