With a 24.5% rise in the past three months, including 15% gain in thirty days, Nike (NKE) stocks has been one of the better performers in retail despite the macroeconomic uncertainty. While the stock hasn’t done much on a year-to-date basis, rising just 3.6%, the setup for 2024 is quite appealing.

The global athletic footwear giant is set to report second quarter fiscal 2024 earnings results after the closing bell Thursday. Goldman Sachs analyst recently ranked Nike among the list of brands which are poised to benefit not only from healthy consumer spending trends in 2024, but also a more normalized demand environment for services and goods, where more technology will drive higher profit margins.

“We are more bullish on the potential for stock upside in the hardlines/broadlines universe than we have been in the last two years,” the report said. In the case for Nike, there’s plenty to like once the calendar turns, especially given the fact that its margins remain above average, while its valuation is below the long-term average. What’s more, there continues to be a slight recovery in China which is Nike’s second-largest market.

Recently, Citigroup analyst Paul Lejuez upgrades the stock to Buy from Neutral. Citing optimism about Nike’s ability to protect earnings in the current and next fiscal year, Lejuez assigned a price target of $135, compared to its 52-week trading range of $88.66 to $131.31. While Lejuez noted struggles with revenue, the analyst nonetheless referred to Nike as a “One-of-a-kind brand with visible margin recovery creates a favorable risk/reward in our view.”

Some of the added features are the company’s ability to emerge leaner inventory, lower promotions, and more Direct-to-Consumer (DTC) sales. As it stands, DTC now accounts for roughly half of the company’s total revenue, compared to 27.5% six years ago. On Thursday, to keep the stock running higher, the company will need to deliver a top and bottom line beat, along with positive guidance.

For the quarter that ended November, Wall Street expects the Oregon-based apparel company to earn 78 cents per share on revenue of $12.43 billion. This compares to the year-ago quarter when earnings came to 85 cents per share on revenue of $13.32 billion. For the full year, ending in June, earnings are expected to be $3.41 per share, up from $3.23 a year ago, while full-year revenue of $48.7 billion would decline about 4.9% year over year.

Despite the downbeat estimates for the fiscal year, Nike is heading into its crucial holiday-shopping season which is poised to be strong, given the recent upbeat macroeconomic news we received, combined with strong consumer spending. For this reason, Nike’s Q2 results are traditionally among the company’s strongest quarterly results. However, the most recent quarterly results were less than stellar.

In the first quarter, the company missed its revenue target by $60 million, reporting Q1 revenue of $12.94 billion which grew just 2% year over year. Profits, however, were not an issue. Thank to diligent cost controls, the company delivered an adjusted EPS of 94 cents, which beat Street estimates by 18 cents. Just as impressive, the DTC revenues were $5.4 billion, up 6% year over year and growing across all geographies.

During the quarter, Nike brand digital revenue grows 2%, while wholesale revenues were $7 billion, coming in flat on a year-over-year basis. The fact that wholesale revenue was flat further highlights the importance of the DTC business, which is not only more profitable, it also gives Nike more pricing power while allowing the company to affect the consumer buying experience. On Thursday the shares will react positively if the company can improve on the Q1 numbers and provide positive guidance.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Original: Earnings Feed: Nike (NKE) Q2 2024 Earnings: What to Expect