The NIKE Profit Warning You Should Be Aware Of!

By Sasha Cekerevac for Investment Contrarians | Jul 23, 2012

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Following the corporate earnings release for NIKE, Inc. (NYSE/NKE), shares collapsed. During its corporate earnings call, the company’s management issued a statement indicating that they see further uncertainty in the world economy, raising specific issues in Europe and China among other emerging markets. NIKE CEO Mark Parker specifically stated that the company expects these areas to grow much more slowly than they have over the past several years.

While many are envious of the corporate earnings growth the company has been able to generate over the past few years in emerging markets, like China where the firm has over 7,000 stores, a slowdown is now negatively impacting corporate earnings. The worldwide slowdown is having an impact on estimates, and with such a global brand, one can only assume that other firms in the equities market will also voice similar caution in their corporate earnings releases.

There are some positive drivers for the firm that should have an impact on their corporate earnings over the next several quarters, including the Olympics and the new NFL contracts. But caution is warranted, and I would not buy shares at the current moment. I would prefer to wait until late 2012 or early 2013, when the corporate earnings will be positively impacted by these events.

NIKE’s corporate earnings are one more sign of a global slowdown, now affecting the equities market in several nations. Recently, some poor results were released by the Institute for Supply Management (ISM) survey, an important factor for the overall equities market. The results were extremely weak to say the least. The ISM U.S. Purchasing Managers Index (PMI) declined to 49.7 for June. (A reading below 50.0 indicates a contraction in the economy.) Another component that was negative is the ISM Prices Index, which was reported at 37.0, a decline of 24 points over the last two months. The prices components as well as the PMI index itself will weigh on the equities market, as investors fear this will translate into weaker corporate earnings.

Chart courtesy of www.StockCharts.com.

 The chart shows the importance of past pivot levels for stocks in the equities market. As NIKE’s corporate earnings disappointed, the stock sold off with a massive amount of volume. The stock then fell to the support area and is now trying to rebuild some of the damage done. However, I would caution investors, as there is further downside potential.

The risks to the global economy and the equities market are considerable and won’t be fixed anytime soon. For NIKE, the results for positive corporate earnings from either the Olympics or the NFL won’t come to fruition for some time. We are then only left hoping for a turnaround in either Europe or the emerging markets, such as China. Those, I fear, are doubtful in the short term.

In the long term, however, I would look at possibly beginning to accumulate shares in the fall or perhaps the spring, as prices stabilize and the world economy begins to show some signs of life.

Tags: corporate earnings, equities market