Nike’s stock (NYSE: NKE), a company designing, developing, and marketing footwear, apparel, equipment, and accessory products, is scheduled to report its fiscal fourth-quarter (ended May) results on Thursday, June 24. We expect Nike to likely beat earnings expectations and see revenues come in line, driven by a boost in digital revenues. The retailer saw supply chain interruptions, including global container shortages and U.S. port congestion, impacting the flow of inventory and timing of wholesale shipments, in its Q3 2021 report. Having said that, the company could benefit from a significant portion of its sales last quarter pushed into Q4 because of shipping delays, which should boost the bottom line in Q4. Nike has shown that it still has what it takes to grow – with revenue for the nine months of fiscal 2021 jumping 4% year-over-year (y-o-y), digital revenues growing roughly 71% y-o-y in all three quarters, and net income increasing 27% y-o-y. The company expects a more consistent flow of inventory in the upcoming Q4. It is resuming projects that were put on hold in 2020, including stock buybacks, inventory purchasing, and looking deeper into marketing and advertising spends.
Our forecast indicates that Nike’s valuation is $134 per share, which is 3% higher than the current market price. Look at our interactive dashboard analysis on Nike‘s Pre-Earnings: What To Expect in Fiscal Q4? for more details.
(1) Revenues expected to be in line with consensus estimates
Trefis estimates Nike’s Q4 2021 revenues to be around $11 Bil, in line with the consensus estimate. Nike is doing exceptionally well thanks to its loyal customer base, unique product portfolio, digital infrastructure, and impressive gains in China. Nike recorded overall sales growth of 3% y-o-y but missed the analyst expectations in the recent Q3. The soft performance was due to a 10% drop in revenue in North America, which represents more than a third of Nike’s business. However, the company also saw a 60% increase in monthly engaged users across its apps in Q3, with buying members (members using Nike apps to make Nike purchases) increasing 80% y-o-y. Nike’s e-commerce business currently accounts for 35% of the total business and it is looking to expand it to 50% going forward – by getting more people on nike.com rather than having them buy through third-party sites.
Looking further, the easing of pandemic restrictions will result in a surge due to pent-up demand. In addition, the forthcoming Summer Olympics will also likely contribute to spending more on athletic wear.
2) EPS likely to be ahead of consensus estimates
Nike’s Q3 2021 earnings per share (EPS) is expected to come in at 56 cents per Trefis analysis, almost 10% above the consensus estimate of 51 cents. The retailer saw incremental expenses in Q3 but still managed to grow its net income, due to a slump in marketing and advertising costs. However, it should be noted that these costs are not expected to repeat themselves given that sporting events are up again. But as a larger chunk of Nike’s business goes digital and as the company begins to take an edge on these investments – earnings growth should follow.
For the full year, we expect Nike’s net margin to grow a strong 480 basis points to 11.6% in fiscal 2021. This coupled with a 16% y-o-y growth in Nike’s revenues, could lead to a rise of $2.4 billion y-o-y in net income to $5 billion in fiscal 2021. All this, resulting in a possible EPS increase from $1.60 in FY 2020 to around $3.16 in FY 2021.
(3) Stock price estimate higher than the current market price
Going by our Nike’s Valuation, with an EPS estimate of $3.16 and P/E multiple of around 43x in fiscal 2021, this translates into a price of $134, which 3% ahead of the current market price.
For further comparison among peer groups, it is helpful to see how they stack up. NKE Stock Comparison With Peers shows how Nike compares against peers on metrics that matter.