By Zacks Equity Research

Nike (NKE), a global leader in sports equipment and apparel, is expected to report its financial results for the second quarter of fiscal 2013 after the market closes Thursday. The Zacks consensus estimate is $1 per share, the same as for the prior-year quarter.

Currently, the Zacks consensus estimate ranges between 97 cents to $1.04 a share. For the quarter under review, revenue is expected to be $6,019 million, according to the Zacks consensus estimate.

With respect to earnings surprises, Nike has topped the estimate in three of the trailing four quarters in the range of negative 14.6% to positive 13.4%. The average surprise over the last four quarters remained positive at 1.3%.

First quarter fiscal 2013

Nike reported first-quarter 2013 earnings of $1.27 per share, which ran past the Zacks consensus estimate of $1.12. However, the quarterly earnings dipped 9% year-over-year, resulting from poor gross margin, higher SG&A and increased tax rate.

Nike's total revenue augmented 10% to $6,669 million driven by superior demand for Nike brand. Adjusting for currency effect, the company's revenue grew 15%. Revenue for the quarter also surpassed the Zacks consensus estimate of $6,438 million.

On currency neutral basis, revenue for Nike brands elevated 16%, while other businesses delivered 9% growth. Revenue from Cole Haan and Umbro, which are to be divested, was up 6%. During the quarter, the company witnessed strength across all key categories and geographies, except Japan.

Earnings estimates revisions

We do not see any major estimate revisions at this point for the second quarter of fiscal 2013. Of the 15 estimates, only one was revised upward, while none moved in the opposite direction in the last 30 days. In the last seven days, no movement in estimates was noticed in either direction for the quarter.

The magnitude of estimate revisions for Nike depicts a slightly optimistic view for the upcoming quarter. Over the last seven days, estimates for the upcoming quarter remained unchanged, while it rose by a penny to $1.00 per share in the last 30 days.

Conclusion

Recently, Nike successfully completed its previously announced sale of Umbro to Iconix Brand Group (ICON) for $225 million. Further, the company is in the process to dispose its Cole Haan affiliate brand to Apax Partners. The company expects to close this deal by early 2013.

We believe the divestiture of these brands will help boost the company's bottom lines. Meanwhile, in an attempt to expand its global reach and market share, Nike is capitalizing on growth opportunities in emerging markets, especially China.

Additionally, Nike remains focused on other tools, such as a direct-to-consumer business model, to expand geographically. We believe that Nike's continued investment in China and focus on the direct-to-consumer business will not only help in expanding market share, but will also help strengthen its competitive position.

However, we prefer to remain on the sidelines given sluggish discretionary spending, increase in operating costs, and the ongoing European crisis. Nike faces intense competition in both domestic and international markets from local as well as established players such as Adidas AG (including Reebok), PVH Corporation (PVH) and Brown Shoe Company (BWS).

We retain a long-term "neutral" recommendation on Nike. The company currently has a Zacks No. 2 Rank, which translates into a short-term "buy" rating.

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