Squabbling Nike analysts will finally know how the company held up against a tougher group of competitors, excess inventories in the athletic wear space, and a slowdown in sales of basketball shoes when it reports fiscal fourth-quarter earnings Tuesday.
Yet following the U.K. vote to exit the European Union, a new set of questions is arising around the company's business — namely, how big a dent the Brexit may have on its revenues and profits.
As one of its largest markets, Nike's U.K. business accounts for roughly 5 percent of its total revenues, according to analysts' estimates. While still relatively small, that exposure makes it one of the most heavily reliant on the region. When widening the lens to include all of Europe, the continent accounts for roughly a quarter of Nike's sales — meaning continued weakness in the pound and euro could put downward pressure on its earnings.
Swings in European currencies have already reduced Nike's earnings by 5 percent over the past year and a half, according to research by Credit Suisse. The pound fell to a 31-year low versus the U.S. dollar on Monday, while the euro also dropped. But currency fluctuations aren't the only risk.
"The biggest risk to earnings is the potential demand shock across broader European markets given likely instability in the region over the next nine months," Credit Suisse analyst Christian Buss said of the overall apparel and footwear space. "This adds incremental risk to a sector already showing clear signs of top-line deceleration in the North American market, while still suffering from unfavorable currency swings."