Nike’s Stock Down 13% Over Last Year. What’s Next?

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Note: Nike’s FY’22 ended on May 31, 2022. Q2 FY’23 refers to the quarter that ended on November 30, 2022.

After almost a 13% decline over the last twelve months, at the current price of around $128 per share, we believe Nike stock (NYSE: NKE), a company designing, developing, and marketing footwear, apparel, equipment, and accessory products – is appropriately priced. NKE stock has declined from around $147 to $128 over the last year, underperforming the broader indices, with the S&P falling about 8% over the same period. Issues such as supply chain constraints and China’s Covid policies have continued to plague the company during this period. Nike’s inventories rose 43% year-over-year (y-o-y) to $9.3 billion in its fiscal Q2, which further worried investors. The retail stores that buy Nike products and resell them to consumers are sitting on tons of inventory. In the Q2 earnings call, management discussed how supply-chain challenges made it difficult to predict when orders would be filled, so retailers ordered a lot of products to be safe. Now that inventory has arrived, consumer spending is on a declining trend due to a shaky economic outlook. Nike’s gross margin also fell 300 basis points to 42.9% in Q2, driven by higher transport, logistics costs, and markdowns on extra inventory. A strengthening dollar also weighed on gross margin. That said, inventory problems and lower margins are likely to pressure the company in the back half of FY 2023 as well.

Despite the macroeconomic situation, Nike reported Q2 revenue of $13.3 billion, up 17% y-o-y and its non-GAAP earnings were $0.85 per share, marginally above the year-ago quarter. The company beat estimates on both the top and bottom lines in FQ2. In the fiscal second quarter, Nike Direct sales were up 16% to $5.4 billion on a reported basis. A drop in revenue in Greater China (-3%) was more than offset by gains in Asia Pacific & Latin America (+19%), North America (+30%), and Europe, the Middle East, & Africa (+11%). Footwear sales were up 25% to $8.50 billion, while apparel sales rose 4% to $3.8 billion.

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We forecast Nike’s Revenues to be $50.3 billion for the fiscal year 2023, up 8% y-o-y. We forecast earnings per share (EPS)  to come in at $3.18. Given the changes to our revenues and EPS forecast, we have revised our Nike’s Valuation to $120 per share, based on a $3.18 expected EPS and a 37.7x P/E multiple for the fiscal year 2023 – almost 5% lower than the current market price. That said, the company’s stock appears appropriately priced at the current market price.

It is helpful to see how its peers stack up. Check out how Nike’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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Returns Feb 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 NKE Return 0% 9% 151%
 S&P 500 Return 2% 8% 85%
 Trefis Multi-Strategy Portfolio 2% 13% 257%

[1] Month-to-date and year-to-date as of 2/16/2023
[2] Cumulative total returns since the end of 2016

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