Nike shares (NYSE: NKE), a company that designs, develops and markets footwear, apparel, equipment and accessories, is expected to release its fiscal third quarter results on Monday, March 21. We expect Nike shares to trade higher on revenue and earnings beating expectations. As the athletics giant grapples with supply chain constraints and a slower-than-expected recovery in China, it continues to see robust consumer demand as it is able to sell out all items. which are put on its shelves. However, Nike saw sales decline outside of the United States and Europe due to low inventory levels in the fiscal second quarter. That said, inventory plays a crucial role in business operations. As a result, the company is allocating more of its products to its own direct-to-consumer (DTC) channels and withholding inventory from third-party retailers (such as Macy’s). The retailer’s direct-to-consumer channel tends to offer higher gross margins and gives the business more control over the sales process. Despite limited inventory, the company saw its gross margin increase by 280 basis points to 46% in the first half of 2022, driven by margin expansion in the NIKE Direct business. Meanwhile, Nike’s total sales were also up 8% year-over-year (yoy) in the first half. Clearly, Nike isn’t sacrificing sales to achieve higher profit margins.
Nike’s stock is already down 24% year-to-date as it continues to be challenged by supply disruptions caused by the pandemic. Our forecast indicates that Nike’s valuation is $140 per share, 12% higher than the current market price of around $125 (as of March 16). Watch our interactive dashboard analysis at Nike earnings preview: what to expect in the third quarter? for more details.
(1) Expected revenue slightly above consensus estimates
Trefis estimates Nike’s Q3 2022 revenue at around $10.8 Bill, slightly ahead of the consensus estimate. The company reported revenue of $11.4 billion, up slightly year-over-year (year-on-year). Nike’s revenue was impacted by continued supply chain challenges in the marketplace. In fact, Nike’s inventory levels at the end of the quarter were $6.5 billion, up just 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. For the full year 2022, the company continues to expect mid-single-digit revenue growth over the prior year. We expect Nike’s revenue to grow 6% to $47.2 billion.
Over the next quarter, supply chain issues that have plagued Nike factories in Vietnam and Indonesia will continue to put pressure on the company’s bottom line. It should be noted that almost 51% of Nike shoes and 30% of its clothes are made in Vietnam. Additionally, increased investment in air freight to overcome supply chain and inventory challenges will also increase costs. clearly in the second half. In addition, raw material prices from the Russian-Ukrainian conflict will also reduce Nike’s sales, especially in Europe. That said, Nike expects markdowns to be lower than normal for the remainder of fiscal 2022. The company even plans to raise single-digit pricing in the second half to account for a part of the cost increase in the supply chain.
2) EPS to comfortably beat consensus estimates
Nike’s earnings per share (EPS) in the second quarter of 2022 are expected to reach 78 cents per Trefis analysis, comfortably beating the consensus estimate of 71 cents. In the second quarter, the company’s earnings per share rose 6% to 83 cents.
(3) Stock price estimate higher than current market price
Passing through our Nike’s assessmentwith an EPS estimate of around $3.76 and a P/E multiple of 37.2x for FY2022, this translates to a price of $140, or 12% above the current market price.
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|S&P 500 return||0%||-9%||95%|
|Performance of the Trefis MS portfolio||-1%||-11%||249%|
 Monthly and cumulative total as of 03/17/2022
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