Nike, Levi’s and FedEx report earnings this week, offering an early look at demand for sneakers, clothes and things sold online
Second-quarter earnings are still a few weeks away. But results this week from package-deliverer FedEx Corp., athletic-gear giant Nike Inc. and jeans maker Levi Strauss & Co. will give us a look at how much money people have left over to buy the things they want after paying a lot more for their gas and grocery bills.
All three companies are cutting costs and staff, and Wall Street has been hoping for a stronger rebound in demand. FedEx FDX, +0.45% over the last two years has faced a slump in industrial production and online shopping, translating to slower shipping demand. Meanwhile, Nike NKE, +1.68% and Levi’s LEVI, -0.04% continue to deal with price cuts from rivals, and have tried to throw new products at uninspired consumers.
Higher prices for basic needs have reshaped spending habits among shoppers and businesses over the past two years. But after barely eking out profit growth last year, Wall Street analysts predict an 11.3% increase in per-share profits for S&P 500 SPX companies this year and a 14.4% jump next year, driven by gains across industries, according to a FactSet report on Friday.
Analysts generally lower their estimates over time as they square projections with financial realities — a process that, in turn, sets a lower threshold for companies to clear. Were those figures to hold, however, it would be the third time in the last 15 years that the companies in the S&P 500 put up two straight years of double-digit earnings growth, the FactSet report noted.
Meanwhile, Wall Street, for now, expects second-quarter profit margins of 12% across the index overall, fueled by gains for Big Tech and corporate efforts to contain expenses. That would be up from 11.8% in the previous quarter and 11.6% a year earlier, and closer to the blowout figures seen in 2021 and 2022.
In the two years since that period, the economy’s uneven reopening from the pandemic and Russia’s invasion of Ukraine have upended the world’s shipping lanes, food supplies and job market, and businesses have passed on their extra costs to consumers. Some economists believe companies took advantage of the disruptions to keep charging customers more.
Overall profit margins in 2022 landed at 12.1%, according to Dow Jones Market Data, down slightly from a record 12.2% in 2021.
This week in earnings
Elsewhere in the week ahead, results from food giant General Mills Inc. GIS, +0.58% and spice maker McCormick & Co. MKC, +0.18% will offer more context on how people are responding to higher grocery prices. Simply Good Foods Co. SMPL, +1.79% also issues results as it tries to revive its Atkins brand and capitalize on what it recently called a “renewed wave of cultural relevance” for weight management in the era of Ozempic. Results are also due from cruise operator Carnival Corp. CCL, +0.06% as it tries to streamline operations.
Walgreens Boots Alliance Inc. WBA, +0.63%, Paychex Inc. PAYX, +0.70%, Micron Technology Inc. MU, -3.22% and Acuity Brands Inc. AYI, -2.70% also report.
The calls to put on your calendar
Nike and Levi’s: Levi’s reports quarterly results on Wednesday, while Nike will follow on Thursday.
In April, Levi’s nudged its full-year profit forecast higher, citing the impact of its cost cuts and better demand for jeans and its newer products, like dresses and more comfortable denim. However, its sales still fell in the first quarter and retailers, particularly in Europe, have been pickier about the clothing they bring to their stores after two years of sluggish demand.
Meanwhile, fashion tastes have shifted toward looser fits, at least for pants. Some analysts say that trend poses a threat to athleisure’s decade-long popularity.
Whether that threat will extend to Nike’s own sportswear is unclear. Wall Street will likely be focused on Nike’s other problems.
While other analysts say the upcoming Summer Olympics could lift Nike’s fortunes, UBS analyst Jay Sole, in a research note last week, suggested that little has changed since the company’s last round of quarterly results in March. Expectations for Nike are low heading into the results, he said, citing sales trends that remain weak within Nike’s own stores and e-commerce network and particularly in China, where the economy has sputtered. Nike has tried to push new shoes with new “Air” features, but competition from other sneaker makers is still a problem, he added.
“The big event question is, will this report signal to the market [that] Nike’s sales growth rate has ‘bottomed’ and is about to inflect,” Sole said in the note. “We think the answer is no.”
The numbers to watch
FedEx’s sales and margins: FedEx reports quarterly results on Tuesday as it continues its plans to slash billions of dollars in costs over the next few years. Earlier this month, the company announced a dividend hike, and then shortly after said it aimed to lay off up to 2,000 workers in Europe.
TD Cowen analyst Helane Becker said in a research note last week that things to watch for in FedEx’s quarterly report include progress on its cost cuts and its efforts to bring together its air, ground, tech and communications services into one company.
“Weak industrial production and depressed parcel-shipping demand remain headwinds, but the company’s work to become a leaner enterprise should yield benefits when shipping improves,” she wrote.