Weekly equities forecast: Nike, Carnival & Tesco

Nike Q1 earnings preview

Nike is due to report earnings on Tuesday, October 1st. Wall Street expects EPS of $0.53 on revenue of $11.46 billion, down from EPS of $0.94 and revenue of $12.9 billion in the same quarter a year ago.

The earnings come as the share price trades down 16% year to date, sharply underperforming the broader market.

Nike warned of a 10% fall in first-quarter revenue, reflecting the ongoing slowdown in Nike digital, a weak wholesale order book, and muted sales in Greater China. This guidance aligns with the view that demand for Nike products has been sliding due to a lack of innovation and softer consumer demand in China, a key market.

Last week, the company announced the retirement of CEO John Donahoe, who was often criticized for Nike’s weak sales performance. Donahoe will be replaced by veteran Elliot Hill, who served the company for over 30 years before retiring four years ago. The market responded positively to the news of the new CEO, who now has the challenging task of dealing with stiff competition and falling market share. However, the long-term prospects for Nike still look intact, and new leadership at the company could regain some of its lost strength.

How to trade Nike earnings?

In a bearish chart, Nike trades below its multi-year falling trendline and 50 and 200 SMAs. The price ran into support at 70.00, the 2024 low, and has attempted to correct higher. Buyers must rise above the 50 SMA at 93.00 and the falling trendline at 100 to break out. A rise above here exposes the 100 SMA at 117.

On the downside, support is seen at 70.00. Sellers need to take out this level to create a lower low and extend losses towards 58.00

Carnival Q3 earnings preview

Carnival is due to report Q3 earnings, which are expected to impress amid a surge in demand, particularly in Europe and Alaska. Expectations are for EPS of $1.16, up from $0.86 in the previous quarter.

The share price is relatively unchanged this year despite a strong performance across the board and record highs in several business areas. There are no signs of slowing, and the operating margin is again back at pre-pandemic levels.

The strong performance is expected to continue across the second half of this year, and the outlook for 2025 book positions is stronger than this year in both price and occupancy as the firm takes action to meet the high demand.

With the Federal Reserve lowering interest rates, a move that is set to benefit households and improve the economy, companies such as Carnival, which is dependent on consumer discretionary spending, could get an extra boost as trips become more affordable.

Despite the strong outlook, Carnival still has much of the debt from the pandemic on its books. Over the past 15 months, Carnival has prepaid $6.6 billion in debt, which reduces a significant portion of the burden. Management envisions paying the remaining $29 billion debt with increasing cash from operations. The other benefit of falling interest rates is that servicing the debt will be cheaper, allowing Carnival to pay off the debt faster.

However, the risk is that demand may slow if there is any sense of a hard landing in the US. Slowing demand with a high debt level would be a worrying position.

How to trade Carnival earnings?

Carnival attempts to break out of a symmetrical triangle and trades at a 2024 high. The price fell to a low of 7.82 in late 2022 and has been grinding higher since. The price has risen above the 200 SMA, and the falling trendline dates back to 2018. A breakout above here and 20.00, the 2023 high, could see the price target 21.25, the 2022 high. Beyond here, 31.50, the 2021 high, comes into focus.

On the downside, at 16.85, the 200 SMA is considered key support. Below 13.80, the 2034 low comes into play.

Tesco H1 earnings preview

Tesco is set to report interim results on Thursday, October 3rd. The results come as the share price has risen over 22% this year, outperforming the broader FTSE 100 index, which has risen just 7%. The Tesco share price trades just below a 10-year high of 373p reached earlier this month.

The supermarket is benefiting from cooling inflation and lower interest rates, which have eased the squeeze that households have faced amid the cost of living crisis.

According to Kantar data, UK grocery inflation was 1.7% in the four weeks ending September 1^st,  while grocery sales were up 3% over the same four weeks compared to last year. More broadly, UK inflation remained at 2.2% in July. The Bank of England cut interest rates by 25 basis points in August but left rates unchanged in the September meeting.

Yet despite cooling inflation and interest rates, nearly 60% of households remain concerned over the rising cost of their shopping, which could see them favour cheaper brands such as Lidl and Tesco.

According to Kanter data, industry leader Tesco saw sales growth of 5.3%, with its market share hitting 27.8%, its highest level since January 2022. Tesco is taking full advantage of Morrison and Asda's woes as they struggle under debt burdens from their private equity buyers.

Of course, there are risks, such as challenges from Aldi and Lidle amid cutthroat margins. Rising labour costs could also be putting pressure on Tesco's margins.

The supermarket is expected to maintain its target of generating £1.4bn to £1.8bn of free cash flow, which will help to fund cash returns to investors.

How to trade Tesco earnings?

Tesco has been forming a series of higher highs and higher lows since late 2022. The latest leg higher has seen the price rise to a peak of 373p. The RSI is still extremely overbought, so further consolidation or a fall lower could be on the cards.

Buyers will look to rise above 373p towards 400p the round number.

There is little in the way of support until 300p, the June low.