Nike stock could do something unexpected before the Olympics

LeBron James.
Steve Dykes/AP

The Summer Olympics are set to begin in August, and brands are hoping that they can grab some of the excitement surrounding the games for themselves.

Some brands, like Nike, have had problems doing this in the past but aren’t looking much better this year.

“Although many investors seem to view the Olympics as a positive catalyst for (Nike), the stock tends to react poorly heading into the event (somewhat surprisingly),” Tom Nikic, senior analyst at Wells Fargo, said in a research note.

He continued: “Specifically, over the past 10 years, the stock has declined on 75% of the earnings releases that immediately preceded a major sporting event, and the other 25% of the time it had yet to recover from the prior competition.”

Before the 2012 London and the 2008 Beijing Olympics, Nike shares fell 9% to 10%, according to Nikic.

These moves are counterintuitive, as the athletic apparel company could be expected to receive a bump from the sports-heavy event. Nike heavily advertises during the events, which is ultimately why Nikic is worried about the company’s performance.

Nike’s “swoosh” logo.
Thomson Reuters

The heavy spending on advertising announced in earnings releases before the games often shocks investors and are a potential reason for the decline.

“All in, we observe that Nike shares have averaged declines of 3-4% on the earnings release immediately before a major sporting event,” Nikic said.

The company is expected to release its fourth-quarter earnings on June 28 after the market closes.

These losses often take Nike about six months to recover from.

Though Nikic predicts a slump before the games, the global-apparel power isn’t necessarily in trouble.

He said:

Nike is one of the strongest consumer brands in the world, with ongoing opportunities for sales growth and margin expansion.

The Summer Olympics have historically been a springboard for NKE’s innovation cycle, which drives the business for the following years.

Business Insider / Andy Kiersz, data from Bloomberg