NKE Stock Gains Momentum Ahead of Q1 Earnings

NKE stock

Nike Inc. (NYSE:NKE) will on Tuesday announce its earnings results for the fiscal 2020 first-quarter. There are high expectations from NKE stock investors considering the company performed exceptionally in 2019, outpacing management forecasts.

Despite this positive performance, the company faces challenges such as the slowing of growth in China, rising tariffs, as well as competition from the likes of Lululemon AthleticaInc. (NASDAQ:LULU). Investors will be keen on whether Nike has the potential to overcome the challenges without sacrificing profitability and growth. Here is what investors will be watching:

Growth in Revenues

In fiscal 2019, the company performed well in terms of sales and posted an increase of 11%. The growth was mainly due to a series of product launches as well as a growing focus on direct-to-customer sales. Nike saw its market in the US grow steadily, while that of rival Under Armour (NYSE:UAA) declined.

The 11% growth rate is, however, around half the pace of expansion of Lululemon. This should not be a concern, though, owing to Nike’s scale, which added $4 billion extra in yearly sales to the total revenue base. This is almost the same revenue Lululemon expects for the whole of fiscal 2020. Nike is projecting a slight decline in growth to 9% this year.

At the time of writing, NKE stock is up 1.20% at $87.73.

Profitability

It seems Nike has not felt the pressure resulting from increasing the cost of inputs or increasing tariffs as this was not evident in its last few earnings. Last year its gross profit increased by almost a whole point. The company has seen a boost in earnings because of the growing number of customers buying directly from the company’s fulfillment channel.

The company has indicated that gains such as sales growth are likely to slow in this coming year.

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Projections

The company expects to keep the positive growth momentum in fiscal 2020. Investors should expect some major updates to profit targets and sales when the company releases earnings on Tuesday. Nike expects to see growth in sales, especially in China, owing to the strong demand for new product and shift to direct-to-consumer sales.

NKE stock has soared about 20% since the beginning of 2019.

Featured image: DepositPhotos © ArturVerkhovetskiy

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