[Note: Nike FY 2022 ended May 31, 2022]
Nike shares (NYSE: NKE), a company that designs, develops and markets footwear, apparel, equipment and accessories, is scheduled to report its fiscal 2023 first quarter results on Thursday, September 29. We expect Nike shares to trade higher on better-than-expected revenue and earnings. As the athletics giant grapples with supply chain constraints and a slower-than-expected recovery in China, it continues to see robust consumer demand. The Covid-19 pandemic has accelerated Nike’s efforts to become more self-sufficient by operating more of its own stores and expanding its own online presence. That said, 40% of its revenue now comes from direct-to-consumer sales (Nike Direct) rather than through wholesale, and Q4 2022 online sales grew 18% on a currency-neutral basis. We expect this trend to continue in the next quarter as well. While the company’s stock price is currently negatively impacted by supply chain issues, rising costs and rising inventory levels, we believe these issues are short-term and will eventually come to an end. resolve in the longer term. The company ended fiscal 2022 with $13 billion in cash versus just $8.9 billion in debt and $5.4 billion in free cash flow. This strong balance sheet will likely help Nike weather the headwinds of the current economic turmoil.
Our forecast indicates that Nike’s valuation is $99 per share, or 3% above the current market price. Watch our interactive dashboard analysis at Preview of Nike results: What to expect in the first quarter of the fiscal year? for more details.
(1) Expected revenue slightly above consensus estimates
Trefis estimates Nike’s first-quarter 2023 revenue at around $12.4 billion, slightly ahead of the consensus estimate. The company reported revenue of $12.2 billion, down slightly year-over-year (year-on-year), but up 3% on a currency-neutral basis. 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 up 23% year-on-year, implying here that supply chain disruptions have made it difficult to get products to shelves quickly. For the full fiscal year 2022, the company generated revenue of $46.7 billion, growing 4.9% year-over-year, and its diluted EPS increased 5.3% for reach $3.75. Its gross margin also increased by 120 basis points to 44.8%.
It should be noted that while gross profit margins declined by 80 basis points year-over-year in Q4 2022, full-year margins increased primarily due to Nike Direct. Nike Direct has consistently grown faster than other Nike businesses in recent years and accounted for 40% of its revenue in fiscal 2022.
Going forward, Nike expects gross margins to decline slightly in fiscal 2023 as it grapples with higher transportation costs, a recalibration of inventory following disruptions in Covid-19 in China and currency headwinds. We planned Nike’s income grow 8% year-over-year to $50.3 billion in fiscal 2023.
(2) EPS to comfortably beat consensus estimates
Nike’s first-quarter 2023 earnings per share are expected to hit 98 cents according to Trefis analysis, comfortably beating the consensus estimate of 93 cents. In the fourth quarter, the company’s earnings per share fell 3% year-on-year to 90 cents. Going forward, Nike warned that more promotion would be needed to attract customers to reduce inventory, suggesting further pressure will be put on profits in coming quarters. Although he expects higher prices and the ongoing transition to a more direct-to-consumer business to offset some of the pressure on margins.
(3) Stock price estimate higher than current market price
Passing through our Nike’s assessmentwith an estimated EPS of around $3.75 and a P/E multiple of 26.4x for FY2023, this translates to a price of $99, or 3% above the current market price.
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