What To Expect From Nike’s Stock Post Q1?

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[Note: Nike FY 2022 ended May 31, 2022]

Nike’s stock (NYSE: NKE), a company designing, developing, and marketing footwear, apparel, equipment, and accessory products, is scheduled to report its fiscal 2023 first-quarter results on Thursday, September 29. 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. 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 shopping presence. That said, 40% of its revenue now comes from sales made directly to consumers (Nike Direct) rather than via wholesaling, and Q4 2022 online sales were up a large 18% on a currency-neutral basis. We expect this trend to continue into the upcoming Q1, as well. While the company’s stock price is currently negatively impacted by supply chain snarls, rising costs, and higher inventory levels, we believe these problems to be short-term and will sort themselves out eventually in the longer term. The company ended FY 2022 with $13 billion in cash against just $8.9 billion in debt, and $5.4 billion in free cash flow (FCF). This strong balance sheet will likely help Nike navigate the headwinds in the current economic turmoil.

Our forecast indicates that Nike’s valuation is $99 per share, which is 3% higher than the current market price. Look at our interactive dashboard analysis on Nike’s Earnings Preview: What To Expect in Fiscal Q1? for more details.

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

Trefis estimates Nike’s Q1 2023 revenues to be around $12.4 Bil, marginally ahead of the consensus estimate. The company reported revenues of $12.2 billion, down slightly year-over-year (y-o-y) but up 3% on a currency-neutral basis. 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 up 23% y-o-y, implying here that supply chain disruptions made it difficult to bring products to shelves promptly. For the full year FY 2022, the company generated $46.7 billion in sales, a 4.9% growth y-o-y, and its diluted EPS grew 5.3% to $3.75. Its gross margin also expanded 120 basis points to 44.8%.

It should be noted that while gross profit margins declined 80 basis points y-o-y in Q4 2022, the full-year margins increased primarily because of Nike Direct. Nike Direct has consistently grown at a faster clip than Nike’s other businesses over the past several years and accounted for 40% of its top line in fiscal 2022.

Going forward, Nike expects its gross margins to dip slightly in fiscal 2023 as it grapples with higher freight costs, a recalibration of its inventories following the Covid-19 disruptions in China, and currency headwinds. We have forecast Nike’s Revenues to grow 8% y-o-y to $50.3 billion in FY 2023.

2) EPS to comfortably beat consensus estimates

Nike’s Q1 2023 earnings per share (EPS) is expected to come in at 98 cents per Trefis analysis, comfortably beating the consensus estimate of 93 cents. In Q4, the company’s earnings per share saw a 3% y-0-y decline to 90 cents. Going forward, Nike has warned that it would need to be more promotional to lure in customers as a means of lowering inventory, which suggests further pressure will be put on profits in the quarters to come. Although it expects higher pricing and the ongoing shift to a more direct-to-consumer business to offset some of the margin pressure.

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

Going by our Nike’s Valuation, with an EPS estimate of around $3.75 and a P/E multiple of 26.4x in fiscal 2023, this translates into a price of $99, which is 3% 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.

With inflation rising and the Fed raising interest rates, Nike has fallen 42% this year. Can it drop more? See how low can NKE stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 NKE Return -10% -42% 89%
 S&P 500 Return -8% -23% 63%
 Trefis Multi-Strategy Portfolio -12% -26% 194%

[1] Month-to-date and year-to-date as of 9/28/2022
[2] Cumulative total returns since the end of 2016

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