Nike to report Q3 earnings amid the backdrop of COVID-19

All eyes will be on Nike (NKE) as the global sportswear giant announces its Q3 earnings after the bell Tuesday amid the backdrop of the COVID-19 pandemic. The coronavirus has hit sportswear and retail brands such as Nike particularly hard. The report will give investors a first look at how the virus has impacted Nike’s sales in China and abroad. On March 16, the company temporarily closed all 384 retail stores in the U.S. until March 27. Shares of the shoemaker have plunged 38% this year.

Despite the contagion, many analysts believe that Nike’s fundamentals remain strong. Consensus expectations from Bloomberg predict the company will post earnings of 58 cents per share on $9.87 billion in revenue.

“It’s going to be a unique type of report, that’s for sure,” UBS analyst Jay Sole told Yahoo Finance. Investors will be looking for some level of reassurance — but, that might not happen, he said.

“I think it’s very possible they won’t have guidance the way they normally do, and that’s what investors are looking for this time, and that’s very different from what they would normally look for,” he said. 

Sole also tells Yahoo Finance that investors want to know what Nike’s sales focus is going to be, how much margins could expand, and they also want to get a sense of the company’s growth rate during these uncertain times. 

“I think right now people are just looking for a sense that the company can set a floor under how bad things might get this year if the declines we’ve seen in retail persists … I think the market wants to know that as store sales continue to be challenged, can Nike still generate good e-commerce growth.”

In an effort to bolster online sales, Nike has offered a 25% discount on many of its footwear and apparel offerings.

Sole tells Yahoo Finance that one advantage Nike has is that the company is “a little bit more sophisticated” in terms of using technology to help its supply chain.

“They have better visibility into where their inventory is located … But at the same time, there is going to be so much excess inventory out there in the marketplace. Everybody’s going to be affected, Nike, Adidas, everybody. So I would say Nike probably has a few advantages, but I wouldn’t call them game changers right now,” Sole said.

As far as challenges that lie ahead for the Swoosh brand, Sole believes that the biggest could be cutting expenses. 

“London, United Kingdom – April 22, 2011: Nike store logo located in central London, near Covent Garden. The Nike Swoosh logo hanging from a house wall. Nike is a global sports clothes and running shoes retailer. Nike stores are located all over London. Covent Garden is a famous shopping area and tourist hot-spot.”

“One of the biggest risks is when sales drop expenses often do not drop in the same way because companies just can’t move that fast. People want to know how, how quickly Nike can adjust to this new environment, and if they can adjust fast, I think that would give people some comfort, and that might help the stock price,” he said.

Raymond James analyst Matthew McClintock, in a March 19 note to clients, said that Nike’s longterm outlook is strong.

“Nike has demonstrated a very impressive performance during prior recessions,” he wrote. “We believe a large reason for this performance has been global growth and distribution gains. However, we believe this strength is largely a testament to the idea that good product sells even in bad times, and NKE’s history is filled with strong innovation launches of great product.”

McClintock also noted that there will likely be strong demand for Nike when the virus wanes, though it will not be immune the fallout of the pandemic. “We note the company faces significant challenges related to the coronavirus. First and foremost, the company likely has a substantial amount of global inventory that hasn’t sold and needs to be cleared before new innovation can launch.”

Sam Poser of Susquehanna International Group also predicts Nike will weather the COVID-19 pandemic. 

“It’s one of the best companies out there, and it’s got a balance sheet that’s ridiculously good, and they have so many levers they can pull,” he said. 

“This [coronavirus] problem could take out some small companies that don’t have the balance sheet and the focus that Nike does. So at the end of the day, on a relative basis, Nike is still a winner any way you look at it and it.”

Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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