Nike Earnings Preview

Expectations

Nike is expected to announce fiscal third quarter earnings at 4:15 pm EST Thursday with the conference call at 5:00 pm.

Analysts polled by FactSet expect EPS of $0.67—a year over year increase of 11.7 percent. The company is expected to report revenue at $6.23 billion—a 6.6 percent increase year over year. The company has beat earnings three out of the past four quarters.

Analyst & Media Commentary

CNBC Reported that UBS’ Michael Binetti said, "The real problem over the last year is the market is filled with a glut of inventory in sportswear.

Susquehanna Financial Group analyst Christopher Svezia believes that Nike’s gross margins should show improvement in Q3 as well as the next few quarters. This should help offset any weakness in international markets.

According to Forbes, UBS (NYSE: UBS) lowered its estimates on the stock after citing unfavorable foreign exchange rates that will impact earnings.

The Bear Case

20 percent of Nike’s sales come from Europe. It’s no secret that Europe is challenged and if any recovery is taking place, it’s far behind the United States economy. This has, and should continue to weigh on the stock going forward.

Nike’s European exposure is larger than companies like Lululemon (NASDAQ: LULU) which derives most of its sales from the U.S., Canada, Australia, and other, more stable economies.

Then there’s gross margins. According to Binetti, "They said last quarter that they are expecting that (margins) to be up by about 80 basis points year over year. We're looking for them to reiterate them. To hear that go positive would be very encouraging for people."

The Bull Case

With all of the talk of an Apple (NASDAQ: AAPL) watch in development, some suspect that an Apple/Nike partnership may be in the works.

Although purely speculation, others note that although Nike’s FuelBand hasn’t taken off with consumers, Nike has already entered the wearable technology market and could have an advantage over other manufacturers as it continues to innovate. A partnership with Apple is compelling.

Technical Analysis

Nike is up nearly 31 percent from its 52 week low. After a strong run to the upside, the stock has been in a consolidation pattern since mid-January. The convergence of its 20 DMA and 50 DMA have created a strong level of support with the 50 day at $54.02—about 1.5 percent lower than current levels.

With RSI at 54, the stock isn’t showing signs of being overbought making a positive earnings announcement an upside catalyst.

However, disappointing results causing the stock to break through such strong support doesn’t leave reliable levels of support underneath. In other words, it could get ugly.

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