Nike is set to release its financial results for the three months ending 28 February. According to market expectations, that earnings announcement due after US markets close on Thursday could move Nike’s share price by 5.5% either way when trading resumes on Friday.

Nike has enjoyed a stellar rise since the market rout 12 months ago, rocketing 130% since 23 March 2020.

However, that momentum has stalled since registering its highest ever closing price on 11 January 2021, as the stock has remained in a sideways pattern in the two months since. Nike’s year-to-date gains now stand at 2.25%, lagging behind the 7.25% posted by the Dow Jones index and the S&P 500’s 5.5% added so far in 2021.

From a technical perspective, Nike’s share prices are testing the upper limits of its Bollinger band, with momentum indicators turning bullish. Nike bulls would take heart from the stock’s ability to breach the $145 resistance region temporarily on Tuesday, posting a higher high from February’s levels.

You could almost hear Nike bulls cheering the stock on with roars of the company’s slogan, “Just Do It”!

But in order for the stock price to stay up there, or even post a new record high, Nike may need a positive catalyst. And such a catalyst may arrive after markets close on Thursday.

What are markets expecting for Nike’s FYQ3 earnings?

• Revenue: 9% year-on-year increase to US$11 billion
• Net income: 11.1% y/y increase to US$1.22 billion
• Adjusted earnings per share: 4% y/y increase to 76 cents

Nike’s sales growth is expected to be largely powered by the Greater China region, which may have registered a 30% expansion in revenue, according to Bloomberg Intelligence. No surprise there, given China’s 33.8% year-to-date retail sales expansion that it announced on Monday, although the comparison with the same period last year is heavily distorted due to the fact that China was in lockdown in the initial months of 2020.

As of end-November, Greater China contributed about 20% to Nike’s total revenue, which is two percentage points higher than the same period in its 2020 financial year. The US remains Nike’s largest market, accounting for over a third (35%) of total sales in its fiscal second quarter.

Nike’s digital push paying off

Nike’s digital push, a move that was announced back in 2017 to make the company less reliant on brick-and-mortar stores, also helped counter the negative effects from store closures. Digital sales are expected to register another period of double-digit growth, even though the company already stated that more than 90% of Nike’s stores have been open as of their previous quarterly report on 18 December.

Macroeconomic headwinds may weigh on Nike’s fortunes

However, note that the forecasted 9% expansion in the company’s top line for the period may be slightly too optimistic, considering some lackluster macroeconomic data.

During the quarter, the production volume of apparel and leather in the US actually fell 0.5 percent. Also, the February US retail sales data that was just announced on Tuesday came in lower-than-expected, registering a 3% month-on-month contraction compared to January’s revised 7.6% expansion from the month prior. December’s US retail sales also recorded a month-on-month decline of 1.3%.

Noting the broader industry’s declines between December and February, that may colour Nike’s fortunes for the reporting period.

How does Nike’s share price tend to react after its earnings release?

Nike shares have posted single-day advances after three of the past four quarterly earnings releases. Using a longer timeframe, since 2010, the stock has averaged a single-day move of about 5% after its quarterly results were announced.

Keep in mind that Nike is now a mere 1.37% away from its highest ever closing price of $146.79.

Hence, a positive earnings surprise, coupled with a healthy amount of risk appetite in broader markets, could well see a new record high for Nike by the end of the week, provided that the forecasted 5.5% move actually materializes to the upside.

With more of the global economy shedding virus-curbing measures, the world is inching closer towards seeing spectator-filled sports arenas and more live sporting events being broadcasted. That may serve as a tailwind for Nike’s earnings and its share price performance over the coming months.

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