What To Expect From Nike’s Stock Post Q3 Results?

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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 third-quarter results on Tuesday, March 21. We expect Nike’s stock to see little to no movement with revenues coming in line with the consensus estimates but earnings falling short marginally. The athleisure giant is grappling with supply chain constraints and a slower-than-expected recovery in China due to the country’s Covid policies. 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. That said, inventory problems and lower margins are likely to pressure the company in the back half of FY 2023 as well.

Our forecast indicates that Nike’s valuation is $120 per share, which is in line with the current market price. Look at our interactive dashboard analysis on Nike’s Earnings Preview: What To Expect in Fiscal Q3? for more details.

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(1) Revenues expected to come in line with consensus estimates

Trefis estimates Nike’s Q3 2023 revenues to be around $11.5 Bil, in line with the consensus estimate. Nike reported Q2 revenue of $13.3 billion, up 17% year-over-year (y-o-y). 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. We have forecast Nike’s Revenues to grow 8% y-o-y to $50.3 billion in FY 2023.

2) EPS to slightly miss consensus estimates

Nike’s Q3 2023 earnings per share (EPS) is expected to come in at 54 cents per Trefis analysis, missing the consensus estimate marginally. The company’s earnings were $0.85 per share in Q2 2023 and marginally above the year-ago quarter. Nike’s gross margin 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.

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 in line with the current market price

Going by our Nike’s Valuation, with an EPS estimate of around $3.18 and a P/E multiple of 37.7x in fiscal 2023, this translates into a price of $120, which is in line with 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.

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 Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 NKE Return 1% 3% 137%
 S&P 500 Return -1% 2% 75%
 Trefis Multi-Strategy Portfolio -4% 3% 224%

[1] Month-to-date and year-to-date as of 3/20/2023
[2] Cumulative total returns since the end of 2016

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