By Wallace Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch) -- Financial results from Nike this
week could offer a preview of how the rallying U.S. dollar may wind
up squeezing corporate profits and outlooks this earnings
season.
Stocks finished slightly higher this past week near all-time
highs with the Dow Jones Industrial Average (DJI) rising 1.7%, the
S&P 500 Index (SPX) finishing up 1.3%, and the Nasdaq Composite
Index (RIXF) up 0.3%, after the Federal Reserve indicated rate
hikes were not just around the corner and Scotland voted to remain
part of the United Kingdom.
Nike Inc. (NKE), the first of the Dow 30 Industrials components
to report earnings this season, reports earnings on Thursday. The
athletic apparel and gear giant could be a litmus test for earnings
season as it has considerable exposure to foreign markets and
represents what's expected to be one of the weakest sectors this
season: consumer discretionary.
While some analysts are concerned about weak revenue growth over
the next few quarters, Mark Luschini, chief investment strategist
at Janney Montgomery Scott, said the stronger dollar will likely be
a more significant problem.
"I'm more concerned about currency," said Luschini.
"Multinationals seeing that strength in the dollar could be a
headwind for earnings growth."
Since June 30, the U.S. Dollar Index (DXY), which tracks the
dollar against six major currencies, has gained more than 6% after
moving in a relatively narrow range in the 12 months prior.
Even back in March, when the dollar index was more than 5% lower
than its current level, Nike was warning a stronger dollar would be
a significant drag on earnings.
In a recent note, Susquehanna Financial Group analyst
Christopher Svezia lowered his full-year earnings estimate by 2
cents to $3.31 a share solely based on the stronger dollar.
"Headwinds are strongest in [Nike's fiscal second quarter] and
don't appear to be baked into estimates," Svezia noted.
Analysts surveyed by FactSet expect the following from Nike
Fiscal period Earnings per share Revenue
Q1 ending August 88 cents $7.78 billion
Q2 ending November 66 cents $7.02 billion
Q3 ending February 89 cents $7.55 billion
Q4 ending May 95 cents $8.04 billion
FY 2015 $3.39 $30.37 billion
The higher dollar will likely hit all multinationals, especially
in the consumer discretionary sector. As the dollar has gathered
strength, consumer discretionary earnings estimates have dropped
significantly over the course of the quarter.
Back on June 30, the sector was expected to see an earnings
decline of 0.4%. Now, earnings are expected to decline by 5.4%,
according to John Butters, senior earnings analyst at FactSet. Much
of that drag comes from PulteGroup Inc. (PHM) , which booked a big
tax asset valuation in the year ago quarter, Butters said.
But even without Pulte, consumer discretionary is still only
looking at a 2.3% gain in earnings, the weakest expected earnings
growth sector this season excluding tech and consumer staples.
Other earnings this week lean heavily towards the consumer
discretionary sector.
On Monday, AutoZone Inc. (AZO) reports. Bed Bath & Beyond
Inc.(BBBY) , Carnival Corp.(CCL), and CarMax Inc. (KMX) are
expected to report on Tuesday. Results from Accenture PLC (ACN) ,
Jabil Circuit Inc. (JBL), Paychex Inc. (PAYX), and KB Home (KBH)
come on Wednesday. Micron Technology Inc. (MU) reports on
Thursday.
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