After U.S. stocks staged a rebound last week in the wake of the Federal Reserve’s much-anticipated monetary policy decision, investors this week will look ahead to a somewhat quieter slate of corporate earnings and economic data releases.
One of the most closely watched earnings reports will come after market close on Monday from Nike (NKE). As one of the few companies to report earnings that cover performance for this year, Nike’s fiscal third-quarter results will provide an update as to how the multinational corporation performed in the first months of 2022 against a backdrop of an ongoing pandemic and war in Ukraine.
Nike shares have dropped by more than 20% for the year-to-date through Friday’s close, underperforming the S&P 500’s more than 6% decline over the same period. Investors have grown wary of the stock heavily exposed both to international headwinds and to ongoing supply chain issues. Nike joined a number of other U.S.-based companies earlier this month in announcing it would pare back its business in Russia, amid the country’s war in Ukraine, saying it would no longer take online orders and would close stores in Russia.
“We expect the focus in 3QF22 to be on: 1) supply chain, including inventory on hand vs. in transit; 2) China, where political backlash and COVID-19 lock downs persist; 3) wholesale distribution, and plans to streamline it further; and 3) demand, which has stayed elevated in NA [North America] and EMEA [Europe, the Middle East, and Africa],” wrote Telsey Advisory Group analyst Cristina Fernandez in a note Friday.
“Although the near-term for Nike is choppy until inventory flow normalizes, Nike should continue to benefit from enhanced connections with consumers through its membership program, high full-price selling, greater use of data across the organization, and a more integrated strategic wholesale model through the One Nike Marketplace initiative,” she added.
Back in December during Nike’s last earnings day and call, the company said it expected to see third-quarter sales grow by a low-single digit percentage, and for full-year sales to grow by mid-single digits. Fernandez said she expects Nike to reiterate this guidance on Monday.
Overall, Nike is expected to deliver sales of $10.6 billion for its quarter ending in February, according to Bloomberg consensus data. This would represent growth of 3%, compared to the same period last year. Adjusted earnings per share (EPS) are expected to reach 72 cents a share, compared to 90 cents per share last year.
Sales in Greater China, one of Nike’s key markets, are anticipated to rise back above $2 billion after dipping below that threshold in the fiscal second quarter, as COVID-19 cases in China impacted consumer mobility and spending. Still, the country is grappling with a fresh outbreak of the coronavirus, which may present some downside risks to both sales and supplies for Nike’s latest and future results.
In December, Nike Chief Financial Officer Matthew Friend said the company was growing “increasingly confident that supply will normalize heading into fiscal ’23.”
For many other major companies, however, supply chain concerns have remained top of mind. According to a report from FactSet, 358 S&P 500 companies cited “supply chain” during earnings calls for the fourth quarter, with that figure coming in well above the five-year average of 187.
“This is the second-highest number of S&P 500 companies citing ‘supply chain’ on earnings calls going back to at least 2010 (using current index constituents going back in time),” FactSet’s John Butters said in a note. “The current record is 362, which occurred in the previous quarter (Q3 2021).”
On the economic data front, this week’s consumer sentiment report due out from the University of Michigan on Friday will offer an updated snapshot on the state of the consumer amid soaring inflation and the geopolitical crisis in Ukraine.
The institution’s revised Surveys of Consumers index is expected to come in unchanged from the preliminary March index at 59.7 — the lowest since 2011. Such a result would solidify the deterioration in consumers’ assessments of current and future conditions amid surging prices and turmoil abroad. It would also suggest whether inflation expectations are getting reset and embedded at historically high rates: Earlier this month, consumers said they expected inflation to rise by 5.1% in the next year, marking the highest expected rate since 1981, according to the University of Michigan.
And more importantly, the consumer sentiment index will serve as an indicator of whether declining optimism may ultimately lead to a tangible drop in consumer spending, thereby putting the brakes on U.S. economic activity. U.S. consumer spending comprises more than two-thirds of overall economic activity, and already, early signs have suggested rising prices are curbing at least some demand. Retail sales rose just 0.3% in February, Commerce Department data showed last week, to miss Wall Street’s expectations. And when stripping out gas and vehicle sales — which were primarily boosted by higher energy prices — retail sales actually declined for the month.
“Consumer sentiment, the Treasury yield curve, economists’ growth expectations and investor sentiment all show signs of fatigue and underscore the possibility of a recession looming on the horizon,” Lindsey Bell, chief markets and money strategist for Ally, wrote in an email Friday. “According to the University of Michigan, consumer sentiment has been on the decline since August and in February it recorded its lowest reading since 2011 at 62.8. Readings at 65 or below often coincide with recessions.”
“To be sure, we will need to keep an eye on the consumer as their confidence has been dinged,” Bell added. “But I believe given their still strong financial position, and the strength of the job market, it’s possible this could be a temporary blip in confidence. As we can put some of these near-term concerns behind us, the hope is that the second half of 2022 features a steadier global economy and easing inflationary pressures.”
Monday: Chicago Fed National Activity Index, February (0.69 in January)
Tuesday: Richmond Fed Manufacturing Index, March (2 expected, 1 in February)
Wednesday: MBA Mortgage Applications, week ended March 18 (-1.2% during prior week); New home sales, February (815,000 expected, 801,000 in January)
Thursday: Initial jobless claims, week ended March 19 (211,000 expected, 214,000 during prior week); Continuing claims, week ended March 12 (1.481 million expected, 1.419 million during prior week); Durable goods orders, February preliminary (-0.5% expected, 1.6% in January); Non-defense capital goods orders excluding aircraft, February preliminary (0.5% expected, 1.0% in January) Non-defense capital goods shipments excluding aircraft, February preliminary (0.5% expected, 1.9% in January); S&P Global U.S. Composite PMI, March preliminary (54.2 expected, 55.9 in February); Kansas City Fed Manufacturing Activity Index, March (29 in February)
Friday: Pending home sales, February (1.0% expected, -5.7% in January); University of Michigan Sentiment, March final (59.7 expected, 59.7 in February)
After market close: Nike (NKE)
Before market open: Carnival Corp. (CCL)
After market close: Adobe (ADBE)
Before market open: General Mills (GIS)
After market close: Darden Restaurants (DRI)
No notable reports scheduled for release
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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