Top 2 S&P 500 Stocks to Watch This Week After Nike's Surprise Move

Nike (NKE 0.99%) published results for its fiscal third quarter, which ended Feb. 28, after the market closed on March 31. For its Q3, the company posted earnings that were significantly better than the average Wall Street analyst estimate, on currency-adjusted sales that were roughly in line with the forecast. The footwear-and-apparel giant posted earnings per share of $0.35 on approximately $11.3 billion in sales, beating Wall Street’s forecast for per-share earnings of $0.28 on roughly the same amount of revenue.

While Nike’s overall revenue was down approximately 3% on a currency-adjusted basis in fiscal Q3, it’s the performance of and forward guidance for the company’s Greater China segment that really stood out. Segment revenue was down 10% year over year on a currency-adjusted basis in fiscal Q3, but management actually guided for sales to fall roughly 20% on an annual basis in the current quarter.

Image source: Getty Images.

In response to the company’s Q3 results and forward guidance, Nike stock fell more than 15% – a pullback that had some ripple effects across the consumer-goods segment. Because Nike’s big pullback followed China-related news connected to its Q3 report, there are two other S&P 500 stocks that investors should be watching this week.

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NYSE: NKE

Nike

Today’s Change

(-0.99%) $-0.44

Current Price

$44.19

Key Data Points

Market Cap

$65B

Day’s Range

$43.17 - $44.34

52wk Range

$43.17 - $80.17

Volume

63M

Avg Vol

18M

Gross Margin

40.57%

Dividend Yield

3.67%

1. Lululemon Athletica

While Nike’s results in China have been a drag on that company’s overall performance recently, Lululemon Athletica (LULU 1.84%) has actually been able to rely on sales in the country as a major growth driver. Lululemon’s China Mainland geographic segment grew sales 28% annually on a currency-adjusted basis last year.

Based on recent trends, Lululemon will likely continue to see double-digit sales growth in the Chinese market. On the other hand, the softness of Nike’s guidance could raise some structural questions about the demand outlook for Lululemon in the country.

With the Q4 report that it published in March, Lululemon said that it expected sales for this year to come in between $11.35 billion and $11.5 billion – for growth of roughly 3% at the midpoint of the guidance range. Notably, the company actually expects sales in its North America geographic segment to be down 1% to 3% for the year.

On the other hand, management is guiding for sales from the China Mainland segment to increase roughly 20% on an annualized basis. Lululemon’s categories of outerwear and “lounge” products have been delivering particularly strong performance in China lately, and it’s relying on expansion in the country to power its overall sales growth this year. While Nike’s guidance for weak performance in China doesn’t necessarily mean that Lululemon will face similar challenges, investors will be looking for indicators that could shed additional light on the health of the country’s branded consumer-goods market.

2. Tapestry

Tapestry (TPR 2.18%) is a luxury-goods company that houses the Coach New York and Kate Spade New York brands. Despite a challenging backdrop for the broader retail industry, the business and its stock have been on a roll lately. As of this writing, the share price is up roughly 13% year to date, and 105% over the last year.

In terms of growth, Greater China was Tapestry’s hottest geographic segment in its last quarterly report. Sale in China surged 34% higher on a currency-adjusted basis in the company’s fiscal second quarter, which ended Dec. 27. Segment sales came in at $343.1 million for the quarter, providing 13.7% of $2.5 billion in overall revenue for the period.

On the heels of its very strong performance in fiscal Q2, Tapestry expects its sales growth in the Greater China segment to come in north of 25% for the current fiscal year. With its last quarterly update, management said that the business was seeing growth that outpaced broader industry trends. In particular, it highlighted strong customer-acquisition trends in the Generation Z demographic.

Tapestry’s strong growth in the Chinese market is a reminder that not every U.S.-based fashion and apparel brand is facing the same challenges that Nike is up against. Tapestry’s portfolio of branded luxury goods is performing exceptionally well in the region, and it looks poised for more strong double-digit growth throughout the current fiscal year. On the other hand, Nike’s collapsing performance in the country could highlight some of the risks of Tapestry’s substantial reliance on the Greater China segment as a growth driver.