Futures are expected to slow from the steady 9% to 10% over the past two years to 3% to 5% this quarter.

Last quarter, Nike produced very big revenue and EPS beats on the back of the Beijing Olympics as margins benefitted from lower input costs and the U.S. was actually a little better than expected, thanks to good growth in footwear, and a +3 futures growth. Unfortunately, this was before the fourth-quarter 2008 consumer pullback, so we can assume that Nike's footwear and apparel sales will reflect the current, subdued retail sales environment, to some extent.

1. Commodities should be a favorable tailwind for this quarter, as a note out of Thomas Weisel notes that, between transportation and raw materials, petroleum prices influence 50% or more of Nike's cost of goods, starting with transportation costs and improving through fiscal 2010.
2. One of the great strengths to dominant world-class brands is often the ability to generate strong cash flow and free cash flow in many different economic environments, and Nike is no exception. With capex at just 2% of revenue, the company has a free cash flow yield of 6%, with a recent dividend increase to $1 per year. Another $3.5 billion was added to the share repurchase program in late September 2008.
3. Currency should be a negative this quarter as the dollar strength since July 15 lasted for the entire quarter.
4. The U.S. consumer was a pleasant surprise last quarter -- the U.S. market is roughly one-third of Nike's total revenue but 50% of total pre-tax income -- with footwear and apparel businesses both showing high single-digit growth.
5. China futures orders are expected to slow from up 50% exiting the first quarter to up 30% in the second quarter, and guidance should be interesting for China given the recent economic data. Asia-Pacific is just 15% to 17% of total Nike revenue (and 25% of pre-tax income), but Nike is looking to China to be one of the primary growth engines for the company for the next 10 to 15 years.