Nike shares (NYSE: NKE), a company that designs, develops and markets footwear, apparel, equipment and accessories, is expected to report its fiscal third quarter (late February) results on Thursday, March 18. We predict that Nike will likely slightly beat revenue and profit expectations. , driven by an increase in digital revenues. The company has added more than 70 million new members worldwide to its loyalty program since the start of the coronavirus pandemic. Even when Nike faced the temporary closure of the majority of its global stores, the company managed to post revenue of $38.2 billion over the past four quarters, down 6% from the consolidated figure. of $40.8 billion for the previous four-quarter period. . Nike has shown it still has what it takes to grow – with revenue for the six months of fiscal 2021 jumping 4% year-over-year (yoy), digital revenue growing around 80 % year-on-year in both quarters and net profit up 12% year-on-year. While increased pandemic limits on shopper traffic and continued supply chain disruptions in the third quarter of the fiscal year could lead to a continued decline in physical retail sales year-over-year , we expect the momentum of online sales to drive growth in the next quarter.
Our forecast indicates that Nike’s valuation is slightly above $145 per share, which is the current market price. Watch our interactive dashboard analysis at Nike pre-earnings: what to expect in the third fiscal quarter? for more details.
(1) Expected revenue slightly above consensus estimates
Trefis estimates Nike’s third-quarter 2021 revenue at around $11.1 billion, slightly ahead of the consensus estimate. Nike is doing exceptionally well now thanks to its loyal customer base, unique product portfolio, digital infrastructure and impressive earnings in China. During the fiscal second quarter (ended Nov. 30), the company’s revenue increased 9% year-over-year and diluted earnings per share increased 11% year-over-year. The retailer has seen a dramatic shift in revenue generation from stores to e-commerce, with its direct-to-consumer segment growing 84% year-on-year to account for more than 30% of total sales. Additionally, the Greater China segment saw revenue growth of 24% and now accounts for 21% of Nike brand revenue.
Nike is committed to opening more stores to accelerate growth and provide a more digitally connected experience for customers. It announced plans to open 30 stores in the second half of fiscal 2021. Company management also announced a 12% increase in its annual dividend to $1.10 per share, consistent with its historical increase in dividends for 19 consecutive years. Looking further ahead, it’s easy to believe that the easing of pandemic-related restrictions will lead to a surge due to pent-up demand. Additionally, the upcoming Summer Olympics will likely drive up sportswear spending.
2) EPS is also likely to be slightly ahead of consensus estimates
Earnings per share for Nike in the third quarter of 2021 are expected to come in at 78 cents according to Trefis analysis, nearly 2% above the consensus estimate of 76 cents. The retailer saw extra spending and high inventory levels in the second quarter, but still managed to boost net profit, due to lower marketing and advertising costs. However, it should be noted that these costs are unlikely to repeat themselves given that sporting events are on the rise again.
For the full year, we expect Nike’s net margin to increase 430 basis points to 11.1% in fiscal 2021, driven by higher digital sales. This, coupled with 16% year-on-year growth Nike’s incomecould result in a $2.2 billion year-over-year increase in net income to $4.8 billion in fiscal 2021. All of this, resulting in a possible increase in EPS of $1.60 in fiscal 2020 to approximately $3.03 in fiscal 2021.
(3) Estimation of stock price in line with current market price
Passing through our Nike’s assessmentwith an estimated EPS of around $3.03 and a P/E multiple of around 48x for fiscal 2021, this translates to a price of just over $145, which is in line with the price current market.
Although NKE shares may trade higher after the release of the fiscal third quarter, 2020 has created many price discontinuities that can provide interesting trading opportunities. For example, you will be surprised how the valuation of stocks for Casey’s General Stores vs. Sprouts Farmers Market shows a disconnect with their relative operational growth. You can find many discontinuous pairs here.