Nike’s stock (NYSE: NKE), a company designing, developing, and marketing footwear, apparel, equipment, and accessory products, is scheduled to report its fiscal third-quarter results on Monday, March 21. We expect Nike’s stock to trade higher due to revenues and earnings beating expectations. While the athleisure giant is grappling with supply chain constraints and a slower-than-expected recovery in China – it still continues to see robust demand from consumers as it is able to sell all items that are put on its shelves However, Nike saw declining sales outside of the U.S. and Europe because of low inventory levels in fiscal Q2. That said, inventory has a crucial role in the company’s operations. Consequently, 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 company more control over the sales process. Despite a limited inventory, the company saw its gross margin increase 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 have also grown by 8% year-over-year (y-o-y) during the first half. Clearly, Nike is not sacrificing sales to achieve higher profit margins.
Nike’s stock is already down 24% year-to-date as it continues to be challenged by the pandemic-caused supply disruptions. Our forecast indicates that Nike’s valuation is $140 per share, which is 12% higher than the current market price of roughly $125 (as of March 16). Look at our interactive dashboard analysis on Nike’s Earnings Preview: What To Expect in Fiscal Q3? for more details.
(1) Revenues expected to be slightly ahead of consensus estimates
Trefis estimates Nike’s Q3 2022 revenues to be around $10.8 Bil, marginally ahead of the consensus estimate. The company reported revenues of $11.4 billion, up slightly year-over-year (y-o-y). Nike’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 only 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. For the full year 2022, the company continues to expect revenue to grow mid-single-digits vs. the prior year. We have forecast Nike’s Revenues to grow 6% to $47.2 billion.
In the upcoming quarter, supply chain issues that hit Nike factories in Vietnam and Indonesia will continue to pressure the company’s top line. It should be noted that almost 51% of Nike’s footwear and 30% of its apparel is made in Vietnam. In addition, increased investments in air freight to overcome supply chain and inventory challenges will also increase costs significantly in the second half. Moreover, commodities prices from the Russia-Ukraine conflict will also clip sales for Nike, particularly in Europe. That said, 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 78 cents per Trefis analysis, comfortably beating the consensus estimate of 71 cents. In Q2, the company’s earnings per share saw 6% growth to 83 cents.
(3) Stock price estimate higher than the current market price
Going by our Nike’s Valuation, with an EPS estimate of around $3.76 and P/E multiple of 37.2x in fiscal 2022, this translates into a price of $140, which is 12% higher than the current market price.
It is helpful to see how its peers stack up. NKE Peers shows how Nike’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
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|S&P 500 Return||0%||-9%||95%|
|Trefis MS Portfolio Return||-1%||-11%||249%|
 Month-to-date and year-to-date as of 3/17/2022
 Cumulative total returns since the end of 2016