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Nike Spending on World Cup to Widen Appeal of Sports Apparel

Stocks in this article: NKE

NEW YORK (TheStreet) -- How much will expenses related to promotion and marketing around the World Cup weigh on Nike's (NKE) earnings?

Nike will report its fiscal fourth-quarter ended May 31 on Thursday, and consensus estimates in a Thomson Reuters survey expect that the sports apparel and footwear company will post earnings of 75 cents a share on revenue of $7.3 billion, up 10% from a year earlier.

Nike's spending related to the FIFA World Cup creates some uncertainty about the quarter, wrote D.A. Davidson analyst Andrew Burns in an investor note published on June 18. Burns has a neutral rating on Nike.

Nike's gross margin, the profit a company makes on sales, is another area of concern. Canaccord Genuity analyst Camilo Lyon in report published on June 24. Lyon said higher prices on Nike gear and a favorable mix of product is "being hampered by rising expenses from leathers, chemicals and labor," according to a note. Lyon, who also has a neutral rating on Nike doesn't expect those expenses to abate in the near future.

One trend that Nike is capitalizing on is sneakers in the office as workers choose comfort over dress shoes to get them through the day.

Sneakers at Work Are Running Up Sales for Nike

Basketball's Draw Continues to Boost Nike Sales

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Basketball-related footwear and gear is another growth driver rocketing Nike forward as consumers clamor for not just the very successful Jordan brand of shoes, but now LeBron James, Kobe Bryant, Kevin Durant and others.

"Basketball clearly is continuing to become much more of a global sport," Nike's President Trevor Edwards said during the company's third-quarter earnings call in March. "The fact that more people have a chance to see this sport all around the world, obviously, they watch the NBA with the great players that we have from Kobe, LeBron, KD, I think people have the chance to really experience how those players are just keeping the excitement in the marketplace."

However, foreign exchange pressure has been a drag on Nike's earnings this year. The company is also trying to push the reset button in China by closing underperforming stores and diversifying its products.

"China is a work in progress, and we believe Nike is taking the right steps by resetting the merchandise on a store-by-store basis," Sterne Agee Sam Poser writes. "We expect China to achieve double-digit revenue growth in FY15."

For the fourth quarter, Nike said had previously said that revenue is expected to rise in the high single digit percentages. Gross margin is expected to expand 50 to 75 basis points and SG&A expenses to rise in the high teens.

Shares of Nike are down 2.1% as of Wednesday's close. The stock is trading up 0.12% to $76.56.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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