3 reasons to watch Nike Stock next week

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Nike (NKE -0.95%) investors are about to get valuable insight into the health of his business. The footwear and apparel giant will announce its fiscal fourth quarter results after the market closes on Monday, June 27, and huge questions swirl around the announcement.

After all, Nike likely saw a slowdown in demand in key markets like the United States in the fourth quarter as inflation put pressure on consumer spending. It’s also possible the company was surprised by the change, as other retailers were, putting it in a tight inventory position today.

Shareholders also want to know whether CEO John Donahoe and his team foresee solid growth for the new fiscal year, which has just begun. Let’s take a closer look.

sales trends

Rival Lululemon Athletica set a high sales bar in its latest earnings announcement. The chain said in early June that revenue jumped 32% during the sales period that ended in early May, beating Wall Street expectations.

Investors are less enthusiastic about Nike’s near-term growth potential, and most Wall Street pros expect sales to fall 1% to around $12.2 billion.

A major factor in this decline is Nike’s international footprint, which relies heavily on markets like China and Europe to drive sales gains. Revenues in these regions likely declined even as Nike’s US division slowed from the runaway growth of the previous year.

Warning flags

While China and Europe are expected to rebound over time, there may be other warning signs in Nike’s report. Buyers may have become more price-conscious in recent months as inflation eats away at their purchasing power. Nike shouldn’t be too affected by this change, given its high-end positioning. But the gross profit margin could drop further.

NKE gross profit margin given by Y-Charts

This key metric has increased lately, thanks to Nike’s aggressive product launch schedule and its move away from using retail partners like Foot locker. Yet Nike’s profitability is threatened by soaring expenses in areas such as transportation, labor and manufacturing inputs.

Look forward

Keep a close eye on Nike’s stock levels as a big jump here could portend price drops along the way. Other national retailers haven’t reported a slump in demand for activewear, but it’s still possible that Nike may have to cut some merchandise over the next few months, just like Target plans to do.

Looking ahead, investors should get a good idea of ​​Nike’s near-term growth potential when management releases its official guidance for fiscal year 2023. Wall Street currently expects sales to rise around 11 % in the period just started, compared to an increase of approximately 5% in fiscal year 2022.

Nike is expected to benefit from a boost from the Chinese market emerging from COVID-19 lockdowns and continued strong demand for new shoe releases. But the big question is whether executives see demand slowing significantly as the holiday season approaches. The risk of this slowdown would be amplified by rising inventory levels – and declining profitability – heading into the first and second quarters of the fiscal year.

Demitri Kalogeropoulos holds positions at Nike. The Motley Fool holds positions and recommends Lululemon Athletica, Nike and Target. The Motley Fool recommends Foot Locker. The Motley Fool has a disclosure policy.

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