Things are good for the stock, and for good reason. 2013 has not treated all retailers and apparel names equally; compare Abercombie and Fitch (ANF) and Aeropostale (ARO), which are both down over 20% for the year. Nike has beaten them, but they haven’t beaten every competitor. Under Armor (UA), a relatively young upstart, is up over 60% YTD and has seen steady revenue gains for every quarter.
That doesn’t mean Nike hasn’t seen similar gains. In 3Q13 extending to the end of February, Nike reported 10% year-over-year revenue growth excluding currency effects and future orders up 7%, again ignoring currencies. EPS rose by 20% to 73 cents. The stock went up over 11% overnight.
Then, in the next quarter, the company reported 9% growth (again excluding currencies) and diluted EPS up 27% to 76 cents. The stock was pretty much flat on the news, as investors had already been optimistic of the company’s growth.
The Growth Drivers and the Competition
Now going into the next quarterly earnings call, investors are looking at two fundamental questions. First, is NKE still outperforming other retail apparel sectors thanks to differentiated products, and, secondly, are people spending enough to help Nike raise its top line. With news that less people are applying for jobless claims, Nike rose over 1% in intraday trading before the earnings release, buoyed by investor hopes that less jobless claims mean more discretionary spending in the U.S., translating into sales for Nike.
For an investor looking to buy Nike or sell it short before the earnings call, a few questions will need to be answered. First, how is Nike doing abroad, and how does that compare to expectations? Secondly, is Nike still a popular brand, or is competition from UA and others putting pressure on the name? Finally, is the U.S. economic recovery really strong enough to benefit Nike, and will that be reflected in this quarter’s numbers?
After the end of trading today we will get some answers to these questions, but investors will need to make their bets beforehand. Tomorrow will be far too late, as the market will quickly price in whatever Nike tells investors this evening.