Just Do It: Trade Nike Into September Earnings

We know that while continuing to manufacture footware in China, that Nike (NKE) has whittled the percentage of the firm's shoes made there to little more than a quarter of the whole. The firm has spread it's manufacturing wings to include Vietnam, Cambodia, and Indonesia. Was this foresight on behalf of Nike management, or was it simply a search for reduced overhead sourcing as the Chinese economy continued to develop? The point for us is nether here nor there. The point is that Nike is better prepared for this moment than are a lot of firms that rely heavily on retailing product that is manufactured in Asia, and already has several existing supply chains in place.

Nike runs on a different fiscal calendar than do a lot of other firms. After the afternoon bell on Tuesday, September 25th, the firm will release their Q1 numbers. In June, when the firm put their Q4 data to the tape, they posted stronger than expected results for both the top and bottom lines. Sales were very strong across Europe, the Middle East, Africa, China, and Latin America, not to mention positive growth in North America. In addition to the improved sales performance, gross margins also showed increases. The firm guided fiscal 2019 higher at that time, and perhaps most importantly announced a $15B share repurchase program.

The stock has had an excellent summer. Is it too late to get on board with Nike? The equity currently trades at 26 times forward looking earnings... expensive-ish. but mind you, I am not looking to get married, I am looking for a trade into earnings. Industry consensus for September 25th are for EPS of $0.62 on revenue of $9.91B. If these numbers are realized, this should be good enough for revenue growth of 14.2%.

While September is well known to be the roughest month of the year on average for equity markets, perhaps due to the difference in fiscal years, September tends to be a positive month for NKE. Tom Bowley mentioned in his "Trading Places" weekend note at Stockcharts.com that NKE turns in a positive September roughly 75% of the time, and that over the past 20 years, this stock has averaged a 6% increase for the month. Think I'm exaggerating? I Googled it. Sure enough, nearly every year, around Labor Day, somebody at a respected financial media site has published an article that discusses Nike's ability to buck the September trend.

(A longer version of this column appeared at 7:25 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Stephen "Sarge" Guilfoyle, Jim Cramer and other experts throughout the market day.)

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