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Wednesday, 27 July 2016

Will the Olympics Help BURSA (KLSE) like Nike (NKE) Stock?

Will the Olympics Help BURSA (KLSE)

With the 2016 Summer Olympics just over a week away, the eyes of the world will soon turn towards Rio de Janeiro, where the best athletes on the planet will compete for Olympic glory. Although this year’s Games have already been marred with controversy, the competition will surely still captivate audiences from around the globe.
It is these global audiences that will also be the target of an onslaught of Olympic-themed advertising. All sorts of companies will be incorporating sports, athletes, and patriotism into their commercials in order to tug on the heartstrings of fans.
Olympic sponsorships don’t just come in the form of commercials. For example, Nike (NKE ) is an official sponsor of Team USA, meaning that jerseys, warmups, and licensed apparel will prominently feature the Nike swoosh logo.
In fact, the stakes are incredibly high for Nike, which is currently a Zacks Rank #4 (Sell) stock. After a relatively disappointing earnings report last month, Nike will need an impressive Olympics season to turn things around.
While one might think that Nike’s Olympic success is a near guarantee based simply on the exposure the company will have during the Games, this hasn’t necessarily been the case for Nike during international competitions in the past. 
In fact, Nike shares tend to struggle in the lead-up to things like the Olympics, dropping in 75% of earnings releases preceding a major event over the past decade. It can be easy to forget that becoming an official Olympic sponsor is incredibly expensive, which can put a dent in profits.
This trend continued when Nike reported its fourth-quarter earnings on June 28. Despite posting earnings of 49 cents per share, which beat the Zacks Consensus Estimate by a penny, Nike fell 7% in after-hours trading on weak revenues and margins. The company’s gross margin contracted 30 basis points to 45.9% in the quarter.
Looking ahead, Nike expects first-quarter revenue growth to be in the single digits, with currency headwinds continuing to cause problems. In the past 60 days, we have seen nine negative revisions for Nike’s current quarter earnings, and its EPS is currently expected to fall about 16.9% from the same quarter last year.
With spending on Olympic advertising coming in both the fourth-quarter and the current quarter, this earnings data shows that Nike isn’t an automatic winner during the Games. It appears that Olympic spending can indeed contribute to short-term headaches for the company.
Nevertheless, it’s important to remember that something like the Olympics also kick starts a new period of design and innovation for Nike. The new styles of shoes, uniforms, and other gear that Nike designed for use at the Games will continue to be used and sold going forward.
Traditionally, Nike’s struggles prior to the Olympics don’t continue in the long-term. Between the 2012 and 2014 Olympics, shares of Nike gained over 50%, and the stock is currently up about 57% since the 2014 Games.

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