Should You Buy Nike’s Stock Post Q2 Beat?

[Updated: 12/29/21] NKE Stock Update

Nike’s stock (NYSE: NKE) recently reported its Q2 report, wherein revenues were in line and earnings were comfortably above Trefis estimates. The company surpassed market expectations on the top and bottom lines in its fiscal Q2 earnings with reported revenues of $11.4 billion, up slightly year-over-year (y-o-y), and EPS of 83 cents, up 6% y-o-y. The company’s revenues were impacted by the ongoing supply chain challenges across the marketplace. In fact, Nike’s inventory levels at the end of the quarter were $6.5 billion, up 7% y-o-y. These low inventory levels led to falling revenues in Greater China (-20% y-o-y) and the Asia Pacific & Latin America (-8%), while North America (+12%) and Europe, the Middle East, & Africa (+6%) delivered growth during the quarter. It should be noted that the company saw its margin increase 280 basis points to 46% currently – driven by margin expansion in the NIKE Direct business.

For the full year 2022, the company continues to expect revenue to grow mid-single-digits vs. the prior year, in line with the previous outlook. However, the company is planning for supply chain costs for the entire year to increase relative to its last quarter estimates, with a more significant impact in the second half. For Q3, the Company expects revenue to grow low single-digits (consensus growth of 2.29%) vs. the prior year due to the ongoing impacts from lost production from Covid-related disruptions in Vietnam. We have updated our model following the Q2 release. We now forecast Nike’s Revenues to be $47.2 billion for the full year 2022, up 6% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $3.76. Given the changes to our revenues and earnings forecast, we have revised our Nike’s Valuation at $173 per share, based on $3.76 expected EPS and a 46.1x P/E multiple for fiscal 2022, which is 4% higher than the current market price.

[Updated: 12/17/21] NKE Q2 Pre-Earnings

Nike’s stock (NYSE: NKE), a company designing, developing, and marketing footwear, apparel, equipment, and accessory products, is scheduled to report its fiscal second-quarter results on Monday, December 20. We expect Nike’s stock to trade higher due to revenues and earnings beating expectations. The company received a boost during the pandemic as people turned to more comfortable clothes during lockdowns. We believe that the retailer seems well-positioned for the post-Covid world as well, as consumers remain interested in fitness and functional apparel.

Our forecast indicates that Nike’s valuation is $171 per share, which is 5% higher than the current market price of roughly $163. Look at our interactive dashboard analysis on Nike’s Pre-Earnings: What To Expect in Fiscal Q2? for more details.

(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates Nike’s Q2 2022 revenues to be around $11.4 Bil, marginally ahead of the consensus estimate. The company’s revenue rose 16% year-over-year (y-o-y) in the first quarter to $12.2 billion. The gains were fueled by strong demand, particularly in its direct and digital channels, where sales were up 28% and 29%, respectively. In fact, the company saw 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 came at full price, exceeding the company’s own target. By the look of things, the company appears to be on track to hit its goal of generating 40% of its revenue from owned digital sales by 2025.

In the recent fiscal first quarter, the company lowered its full-year guidance due to supply chain issues that hit its factories in Vietnam and Indonesia. Covid related shutdowns also resulted in Nike losing weeks of production since July, while rail and port congestion lengthened lead times for goods to arrive in North America and the EMEA regions. However, these issues appear to be short-term in nature and should likely not impact the long-term growth of the company.

However as supply chain constraints remain, Nike is expecting markdowns to be lower than normal for the rest of fiscal 2022. The company is even planning on raising prices in the low single-digits in the second half of the year to account for some of the increased costs in the supply chain.

2) EPS to comfortably beat consensus estimates

Nike’s Q2 2022 earnings per share (EPS) is expected to come in at 67 cents per 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 company more control over the sales process. Consequently, Nike’s overall margins grew by 1.7 percentage points to 46.5%, which contributed to a 22% growth in its earnings per share to $1.16 in Q1.

(3) Stock price estimate higher than the current market price

Going by our Nike’s Valuation, with an EPS estimate of around $3.59 and P/E multiple of 47.8x in fiscal 2022, this translates into a price of $171, which is 5% higher than the current market price.

It is helpful to see how its peers stack up. NKE Stock Comparison With Peers shows how Sirius XM compares against peers on metrics that matter.

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[1] Month-to-date and year-to-date as of 12/27/2021
[2] Cumulative total returns since 2017