Company / Analytics

Analytics, 24 September 2021

Understanding Nike latest earnings and Outlook

Nike posted stronger-than-expected first-quarter earnings Thursday but missed analyst estimates on sales. The company noted that though demand exists, the supply-chain disruptions impacting the movement of goods from Asia to North America could impact revenue forecasts heading into the holiday season.

Nike stock fell on Friday as the company reduced its full-year sales forecast to a “mid-single-digit” growth rate, from a previous estimate of double-digit gains.

Read a review of the earnings and analyst comments on the stock.

Nike stock is dropping despite better-than-expected earnings

Nike stock was dropping on Friday, a day after its latest earnings report beat estimates. Nike shares were marked 3.7% lower in extended-hours trading immediately following the earnings release to indicate a Friday opening bell price of $153.66 each, a move that would trim the stock’s six-month gain to around 16%. On Friday, the stock opened lower at $149.26.

How did the company perform?

Earnings for the three months ending in August were pegged at $1.16 per share, up 22.1% from the same period last year and just ahead of estimates of $1.11 per share. Group revenues rose 16% to $12.2 billion, just shy of estimates of a $12.465 billion tally.

Sales in China were up 11% from last year to $1.982 billion. Sales in North American, Nike’s biggest market, grew 15% to $4.879 billion. Gross profit margins rose 170 basis points to 46.5%, “led by margin expansion in our NIKE Direct business, a higher mix of full-price sales and favorable changes in foreign currency exchange rates.”

Nike CEO John Donae said that that the strong results to Nikes continued to the companies deep consumer connections, unrelenting innovation pipeline, and a digital advantage that fuels our brand momentum. “We have the right playbook to navigate macroeconomic dynamics, as we create value through our relentless drive to fuel the future of the sport,” the CEO noted.

Which challenges did the company face?

Pandemic-induced supply-chain challenges remain the biggest problem facing Nike and other global companies. Over the summer, two Nike suppliers in Vietnam – Eclat and Quang Viet – planned production cuts to meet COVID requirements amid a surge in Delta infections in the south Asia region.

Nike produces roughly 50% of its footwear and 30% of its apparel in Vietnam where facilities have been closed as the government tries to tamp down the spread of the Covid-19 virus. About 80% of Nike’s footwear factories in southern Vietnam and roughly half of its apparel factories in the area remain closed.

What is the outlook of the company?

Nike said demand worldwide for its shoes and workout apparel remains strong. But with these bubbling inventory issues, near-term performance will be hurt. The company lowered its fiscal 2022 outlook to account for longer transit times, labor shortages, and prolonged production shutdowns in Vietnam.

Nike now expects full-year sales to increase at a mid-single-digit pace, compared with a prior outlook of low double-digit growth. In the fiscal second quarter, it sees sales flat to down low single digits. Analysts had been looking for revenue growth of 12% for the year, as well as a 12% increase for the second quarter, according to Refinitiv data.

Should I buy Nike stock?

The current consensus among 29 polled investment analysts is to buy stock in Nike Inc. This rating has held steady since September when it was unchanged from a buy rating.

The 26 analysts offering 12-month price forecasts for Nike Inc have a median target of 183.00, with a high estimate of 214.00 and a low estimate of 157.00. The median estimate represents a +22.65% increase from the last price of 149.21, according to CNN Business.

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