What You Need To Know Ahead of Nike’s Earnings Report Thursday

Key Metric: Gross Margin

For the first earnings report since announcing its $2 billion cost-cutting effort, a key metric to watch will be Nike’s gross margin, as it could offer an idea of what progress the company is making in reducing costs and becoming more profitable.

Analysts project a gross margin for the third quarter of about 45.14%, an increase from the 43.35% Nike posted in the year-ago period, as well as the 44.6% margin the company reported in the second quarter.

Earlier this week, Bank of America analysts dropped their price target for Nike to $120 from $125, noting that the company needs to improve its profitability in China, though they said the Summer Olympics in Paris could help boost Nike’s sales later this year.

Wedbush analysts lowered their price target to $115 from $131 Monday, and said that “NKE has clearly been off their game recently.”

“Given last quarter’s guidance cut and a much easier sales compare in fiscal Q4, we don’t really see much downside risk to management’s current outlook, but we don’t see a beat-and-raise scenario either,” they said.

Business Spotlight: Cost-Cutting Efforts

As Nike works to bring down costs, the company reportedly announced in February it would lay off about 2% of its workforce or over 1,600 workers by the end of the fiscal fourth quarter.

In December, Nike said it would also look to cut costs through “simplifying our product assortment, increasing automation and use of technology, streamlining our organization, and leveraging our scale to drive greater efficiency.”

The company warned it would likely have $400 million to $450 million in restructuring charges primarily due to severance costs from layoffs, which would largely be posted in the third quarter.

Nike shares were down nearly 6% year to date as of Wednesday’s close, and have lost over one-fifth of their value in the past 12 months.