Q3 Preview: Nike (NKE) Will Continue Winning Ways as Margins Widen

Nike (NYSE: NKE) is trading lower Thursday afternoon heading into the athletic apparel giant's third-quarter earnings report, expected out after the market closes.

Currently, the Street is expecting earnings of $1.16 per share on revs of $5.8 billion. The numbers compare with earnings of $1.08 and revs of $5.08 billion reported in the same period last year.

Through the quarter, Nike gained 12.6 percent to $107.56 at the end of February. Shares are 2.7 percent better since then and up about 15 percent since the start of 2012.

Data from Bloomberg has 16 analysts with a Buy on Nike, six at Hold, and one with a Sell rating heading into results. The Street's price target average is $117, with a low of $91 and high of $130. Nike has traded within a range of $69.43 to $112.97 over the last year.

Analyst Comments

• Goldman Sachs sees earnings of $1.16 per share, with little upside to results. However, Goldman is modeling several catalysts to drive upside, starting with sales upside. Goldman cites strong sell-through and easier "at once" comps diving upside for revs.
  
  Future orders should also be strong, "driven by robust February sell-through (particularly Basketball), the impact of Spring price increases, and the initial impact of some Olympic/NFL sell in."
  
  Finally, there's an opportunity in gross margin expansion. Though margins are likely to com in-line for the third-quarter, looking ahead Nike should benefit from price increases "and inventories should get under control just as NKE begins to anniversary higher obsolescence/close-outs."
  
  
• D.A. Davidson (DAD) sees EPS of $1.19 on revs of $5.82 billion. DAD commented that Nike appears to be returning to margin expansion following the reduction of input costs and continued strength in sales.
  
  The firm recently issued some bullish comments heading into numbers, saying in part that EPS growth for Nike might reach 20 percent by fiscal 2013. For a longer-term perspective, DAD said positive factors include: "the NFL uniform license (2012 NFL season), the upcoming 2012 UEFA Euro and 2012 London Summer Olympics, and the robust product-driven North America growth in lightweight running and performance apparel."
  
  
• Just a week ago, Barclays issued comments and an EPS estimate of $1.19. The firm commented, "We expect Nike to deliver continued double digit revenue growth, as implied by the futures increase of +13.0% reported in 2Q12. We expect revenue to increase 14.2% to $5.80 billion." For more from Barclays, click here.Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Nike's past performance at Streetinsider's Nike's Income Statement.

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