Nike vs adidas earnings: how will they impact share prices?
Investors will be more concerned with how the coronavirus will impact Nike and adidas in the coming months rather than the results of the two sporting goods giants.
When will Nike report earnings?
US athleisure and sportswear firm Nike will release its third-quarter (Q3) results on 24 March 2020. This will cover the three months to the end of February 2020.
When will adidas report earnings?
German peer adidas will release its FY results covering the 2019 calendar year on 11 March 2020. This will feature its results for Q4 of the year as well as annual earnings.
Nike vs adidas earnings: what to expect
Nike’s new chief executive to unveil his first set of results
Nike’s quarterly results will be special as it will mark the first set of earnings under its new chief executive officer (CEO) that took over in January. Mark Parker made way after 13 years at the helm for John Donahue to take the reins and become only the fourth CEO in the company’s history. Donahue was formerly the CEO of online marketplace eBay and was more recently the chairman of payments firm PayPal.
The appointment marks a significant shift for Nike. The company has won applause for appointing a digitally-savvy boss at a time when Nike is investing heavily in its digital offering and its direct-to-consumer business that aims to bypass the middlemen retailers. However, the fact Nike is retaining the skills of Parker, who has moved to the role of executive chairman, has also installed confidence that the leadership team has become stronger. Investors will be keen to see if a new CEO will bring any changes in strategy and will hope the appointment can drive online and direct-to-consumer sales going forward.
adidas set to report better annual results
adidas has set a strong precedent for its results after it said last November, when it released its Q3 results, that it expected a ‘significant top-line acceleration during Q4’, putting it on course to post strong progress over the FY. The company is expecting its annual gross profitability to remain broadly flat from the year before but said its operating margin should improve to 11.3% to 11.5% from the 10.8% seen in 2018. As a result, adidas is expecting net income to grow 10% to 14% year-on-year (YoY) on the back of revenue rising between 5% to 8% on a currency-neutral basis.
One thing to watch is adidas’s growth in North America. adidas has been slowly eroding Nike’s leadership in its home market over the years and investors will be hoping that trend will continue. For example, adidas reported 10% growth in North American revenue in its latest quarterly results, which was double the 5% growth last reported by Nike.
Nike vs adidas: focus is on the outlook as coronavirus outbreak takes hold
Investors will be more concerned with the pair’s outlook rather than the results themselves. This is because the coronavirus has caused problems for both stocks since the virus was discovered in January.
Nike said in early February that it had shut around half of its stores in China, and that the ones that remained open were operating reduced hours and experiencing significantly less footfall than usual. Importantly, as Nike is reporting results that run for the three months to the end of February, it is likely that the virus could have impacted its quarterly results.
‘In the short term, we expect the situation to have a material impact on our operations in Greater China. However, Nike’s brand and business momentum with the Chinese consumer remains strong, as reflected in the continued strength of our Nike digital commerce business,’ Nike said. ‘This situation was not contemplated at the time we provided Q3 guidance during our Q2 fiscal year 2020 earnings call. Dynamics continue to evolve and accordingly we will provide an update on the operational and financial impacts on our Q3 earnings call.’
This could mean that investors could be in for a nasty surprise when the results are released and they should keep an eye on any changes to Nike’s guidance, including its goal to deliver annual revenue between $41.85 billion and $42.64 billion (which would be 7% to 9% higher than the $39.11 billion reported last year).
adidas is also said to be suffering. Reuters reported on 19 February that adidas had said its sales in China had fallen by about 85% YoY since Chinese New Year ended on 25 January, again as a result of shutting down stores while those that remained open struggle to attract customers.
Any problems caused by the virus for adidas won’t be reflected in its results as they cover a period to the end of December 2019, which was before the virus had even been discovered. However, it could impact the company’s outlook for 2020 and investors should look out for any commentary on its performance in the initial months of the year. Investors can be confident that adidas will deliver results as expected, but should look for a downbeat outlook and a weak start to 2020.
China is key for both Nike and adidas, so the slowdown there, plus in wider Asia, will have a material impact. About 17% of Nike’s sales are in China while another 14% is from the rest of Asia Pacific. One-third of adidas’s sales are made in Asia, and around 20% is thought to be made in China directly. It is also a key driver of growth for both businesses. Nike’s latest quarterly results showed sales in China grew 20% YoY, double the 10% growth reported in overall sales and quadruple the growth reported in its core market in North America. adidas’s latest results showed sales in Asia, including China, was up over 10%, slightly ahead of the 9.1% increase reported in overall net sales and well ahead of the 3.1% growth seen its home market in Europe.
Learn how to invest in China
The country is not just key to sales but also for sourcing and manufacturing. Around 23% of Nike’s footwear and 27% of its apparel is made in China, while adidas sources about 18% of its footwear and 19% of its apparel from the country, according to their latest annual reports. Both companies have significant manufacturing operations across other parts of Asia, particularly in Vietnam and Indonesia.
Nike Q3 results: what to expect
Nike’s Q3 results are expected to be largely down compared to the previous quarter and the year before. Analysts are expecting Nike to report revenue of £10.17 billion, which would be up 5.8% YoY. Profit, net income and earnings per share (EPS) are all expected to fall.
|Nike - $, millions||Q1 2020||Q2 2020||Q3 2020E||Q32019|
|Gross profit margin||45.69%||44%||45%||45.15%|
(Source: Reuters, taken on 3 March 2020)
Nike’s quarterly dividend is expected to be 24 cents per share. That would be in-line with 24.5 cents paid in Q2 and the 22 cents declared in the first. That would also be up YoY from the 22 cents paid in Q3 of the 2019 financial year.
adidas FY2020 results: what to expect
adidas is expected to post a stronger set of results. Investors will need to pay attention to both the fourth quarter results as well as the overall annual performance. Revenue in the final quarter of the year is expected to rise more than 12% YoY to €5.87 billion, while profit, net income and EPS are all expected to be much higher than the year before (although down steeply from the prior quarter). As for the annual results, adidas is expected to deliver progress across the board. It is anticipated that annual revenue will rise by 8.1%, pre-tax profit by 10.1%, net income 14.6% and EPS 16.6%.
|adidas – €, millions||Q1 2019||Q2 2019||Q3 2019||Q4 2019E||Q4 2018||FY2019E||FY2018|
|Gross profit margin||53.56%||53.46%||52.09%||50.39%||52.20%||53.64%||51.80%|
(Source: Reuters, taken on 3 March 2020)
Analysts are expecting adidas to pay an annual dividend of €3.83 per share, which would be up from the €3.35 paid in 2018.
How to trade Nike and adidas
Both Nike and adidas saw their share prices fall when they released their last set of quarterly results despite both companies releasing largely positive updates. Shares in both companies recovered those losses in the days after the earnings and went on to reach new all-time highs in early 2020. Yet both are trading lower today than they were late last year thanks to the coronavirus-induced selling pressure that has hit stocks around the world.
Still, both companies have demonstrated their attractiveness over the long term and any temporary lull in their share prices could present a good buying opportunity for any investors focused on growing value over the years, rather than months, to come. A $1000 invested in Nike five years ago would have almost doubled by today, to $1912, while a €1000 investment in adidas would have soared to €3603.
|Share price movement to 3 March 2020||Year-to-date||1 Year||2 Years||3 Years||4 Years||5 Years|
Brokers believe that the share prices of both Nike and adidas have further room to rise. The 33 brokers covering Nike have an average Buy rating on the stock and a target price that suggests there is potentially 18.8% upside to the current share price. The 39 brokers covering adidas have see 15.9% potential upside from the current price, although the average recommendation is Hold.
(Source: Reuters, taken and calculated on 3 March 2020)
How to trade Nike and adidas
Trading a stock allows you to speculate on the future share price movement of a stock, allowing you to take a position on whether you believe it will fall (going short) or will rise (going long). You do not own the underlying shares and won’t receive any dividends, but you can use leverage. This can be done using either an IG CFD account.
It is worth noting that Nike will release its results after US markets close on 24 March. But trading with IG means you can take advantage of our after-hours trading. You can read more about after-hours trading here.
Nike vs adidas: expect short-term pressure but long-term gains
Nike is expected to grow its top line when it releases its quarterly results but its bottom line is likely to fall from the year before. Still, analysts are expecting Nike to raise its quarterly dividend. A new CEO provides a potential catalyst for shares and investors should watch out for any changes in strategy. However, the coronavirus will have hurt its performance in the final month of Q3 and investors should prepare for Nike to downgrade its outlook and guidance for the FY, which will override any positive news from the new boss.
adidas is expecting its top and bottom lines to improve when it releases its Q4 and annual results, and that should see the company lift its dividend. Although the coronavirus outbreak will not affect the results, it is likely to negatively impact the company’s outlook for 2020 and to have hurt sales in the initial months of 2020.
Both Nike and adidas saw their share prices come under short-term pressure when they released their last set of results, but both fully recovered and actually reached higher ground in the days that followed.
The coronavirus outbreak will be the main concern of investors, which will want to know the true impact on the pair’s operations in China and globally after both stocks issued warnings that it has hit their businesses. The coronavirus is likely to continue adding downward pressure on both share prices over the short term, especially if the impact is worse than expected. But that could present a buying opportunity for investors looking for long-term value. Both stocks have proven their ability to deliver material growth and have seen their share prices soar during the past five years. The fact they both pay dividends and conduct share buyback programmes means they offer income to investors, even if their respective dividend yields are underwhelming.
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