Should You Buy the Stock Post Q3 Beat from Nike?

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[Updated: 12/30/21] NKE Stock Update

Nike shares (NYSE:NKE) recently released its second quarter report, in which revenue was in line and earnings were well above Trefis’ estimates. The company beat market expectations for revenue and profit in its fiscal second quarter results with reported revenue of $11.4 billion, up slightly year-over-year (on year-on-year), and EPS of 83 cents, up 6% year-on-year. The company’s revenues were impacted by continued supply chain challenges in the marketplace. In fact, Nike

NKE
inventory levels at the end of the quarter were $6.5 billion, up 7% year-on-year. These low inventory levels led to lower revenues in Greater China (-20% YoY) and Asia-Pacific and Latin America (-8%), while in North America (+12%) and in Europe, the Middle East and Africa (+6%). %) generated growth during the quarter. It should be noted that the company saw its margin increase by 280 basis points to 46% currently, thanks to margin expansion in the NIKE Direct business.

For the full year 2022, the company continues to expect mid-single-digit revenue growth year-on-year, in line with previous guidance. However, the company expects supply chain costs to rise for the full year compared to its estimates last quarter, with a greater impact in the second half. For the third quarter, the company expects low single-digit revenue growth (consensus growth of 2.29%) over the prior year due to the continued impacts of lost production from disruptions related to Covid in Vietnam. We updated our model after the release of Q2. We are now planning Nike’s income to $47.2 billion for the whole of 2022, up 6% year-on-year. As for net income, we now expect EPS to reach $3.76. In light of changes to our revenue and earnings guidance, we have revised our Nike’s assessment at $173 per share, based on expected EPS of $3.76 and a P/E multiple of 46.1x for fiscal year 2022, or 4% above the current market price.

Below is our previous coverage of Nike stock where you can follow our view over time.

[Updated: 12/17/21] NKE Q2 pre-benefits

Nike shares (NYSE: NKE), a company that designs, develops and markets footwear, apparel, equipment and accessories, is expected to report its fiscal second quarter results on Monday, December 20. We expect Nike shares to trade higher on better-than-expected revenue and earnings. The business received a boost during the pandemic as people shifted to more comfortable clothing during lockdowns. We think the retailer also seems well positioned for the post-Covid world, as consumers remain interested in fitness and functional clothing.

Our forecast indicates that Nike’s valuation is $171 per share, 5% higher than the current market price of around $163. Watch our interactive dashboard analysis at Nike pre-benefits: What to expect in the second quarter of the fiscal year? for more details.

(1) Expected revenue slightly above consensus estimates

Trefis estimates Nike’s second-quarter 2022 revenue at around $11.4 billion, slightly ahead of the consensus estimate. The company’s revenue increased 16% year-over-year (year-over-year) in the first quarter to $12.2 billion. The gains were fueled by strong demand, particularly in its direct and digital channels, where sales rose 28% and 29% respectively. In fact, the company saw its digital sales jump even as sales in physical stores recovered from the pandemic. Overall, Nike also noted that more than 65% of its total sales were made at full price, exceeding the company’s target. At first glance, the company appears to be on track to meet its goal of generating 40% of its revenue from its own digital sales by 2025.

During the recent fiscal first quarter, the company lowered its full-year guidance due to supply chain issues that affected its factories in Vietnam and Indonesia. Covid-related shutdowns have also led to Nike losing weeks of production since July, while rail and port congestion has lengthened arrival times for goods in North America and EMEA regions. However, these issues appear to be short-term in nature and are unlikely to impact the long-term growth of the business.

However, as supply chain constraints remain, Nike expects markdowns to be lower than normal for the remainder of fiscal 2022. The company even plans to raise prices in the lows to a figure in the second half to account for some of the increased costs in the supply chain.

2) EPS to comfortably beat consensus estimates

Nike’s second-quarter 2022 earnings per share are expected to come in at 67 cents according to Trefis analysis, comfortably beating the consensus estimate of 63 cents. The retailer’s direct-to-consumer channel tends to offer higher gross margins and gives the business more control over the sales process. As a result, Nike’s overall margins rose 1.7 percentage points to 46.5%, contributing to a 22% growth in earnings per share to $1.16 in the first quarter.

(3) Stock price estimate higher than current market price

Passing through our Nike’s assessmentwith an estimated EPS of around $3.59 and a P/E multiple of 47.8x for FY2022, this translates to a price of $171, or 5% above the current market price.

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