Will Q4 Results Help Nike Run Higher?

Fiona Cincotta
By :  ,  Market Analyst
When: Thursday 25th June after market close

Nike reported a 5% increase in sales in Q3, despite store closures in China. Whilst stores have reopened in China, Q4 sales will be impacted by US stores, its largest market, being closed for two months during lockdown.

How hard Nike will be hit is anyone’s guess, particularly after Nike failed to produce any guidance for the quarter. In May Nike did advise that stores in China were nearly all reopened, however it also said that the store closure in the rest of the world would likely have a martial impact on Q4 earnings.

Strong longer term prospects
However, Nike has been growing its online presence, which it has focused on even more in lockdown and which could go some way to keeping sales elevated. A combination of increasing recognition that an active healthy lifestyle is more meaningful than ever, combined with Nike’s focus on its digital offering could mean that after some short term pain Nike is well positioned to benefit from its rapidly growing e-commerce business.

Despite lockdown Nike has powered ahead with product launches under both the Nike and Converse brand. The company is also offering free classes and virtual coaching a move will see user engage in a more meaningful way with the brand. In Q3 in China digital sales jumped 30% in lockdown, a shift which could be replicated in the US  in lockdown.
Analyst expect revenue to decline -28.1% yoy compared to the same period last year to $7.32 billion, with EPS at $0.08. Full year consensus is expected at $39 billion and EPS $2.18.

Target price upgrades
Nike has rallied this week ahead of its earning release as analysts at multiple firms raised their price target on the stock.
UBS maintained its buy rating but increased the target price to $122 from $114
JP Morgan maintained its overweight rating whilst raising the target price to $104, up from $96

Chart thoughts
The share price tumbled close to 40% in late March, along with the broader market as coronavirus set in. Nike shares have performed a spectacular rally and are almost flat year to date, surging 6% this week so far, settling on Tuesday at $101.92.
The share price trades comfortably over its 50, 100 and 200 sma on a bullish chart. 

Immediate resistance can be seen at 104.70, the high reached on 3rd & 5th June, prior to the all time high of $105.62 reached in late January.
Immediate support can be seen at $96, a level which offered support on Friday and Monday, prior to the 200 day sma in the region of 92.50. A breakthrough this level would suggest that the bears are back in control. However, for now, as Nike navigates north of this level more buying could be on the cards.


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