Preview: Nike Q2 Earnings to Decline But Could Raise Outlook Slightly

The world’s largest athletic footwear and apparel seller Nike is expected to report earnings per share of $0.62 in the fiscal second quarter, which represents a year-over-year decline of over 20% from $0.78 per share seen in the same period a year ago.

The Beaverton, Oregon, footwear retailer would post revenue of $11.23 billion, down about 0.1% from a year earlier. For four quarters in a row, the company has exceeded expectations on earnings per share.

However, better-than-expected results, which will be announced on Monday, Dec 20, would help the stock recoup recent losses. Nike stock surged over 16% so far this year.

Analyst Comments

“We are raising our price target to $189 representing 40x our FY23E EPS of $4.73. We don’t believe management will make significant changes to its FY22 guidance but view the business as running above plan in N. America and Europe (EMEA). The gross margin could be a lever to raise back to prior guidance (+150bps at the high end). China is a point of uncertainty with investors and the model,” noted John Kernan, equity analyst at Cowen.

“We are raising our expectations for Q2, largely driven by an incrementally stronger outlook for N.A. and EMEA, with less conviction behind results in Greater China. We now model Q2 revenues +3% y/y ex FX to $11.52B vs consensus of $11.255B, driven by N.A. +2% (+3% vs 2019 compared to Q1’s +14% vs 2019), EMEA +1% (+17% vs 2019compared to Q1’s +19%), Greater China -2%, and APLA +10%. We forecast gross margin expanding +130bps y/y, as higher full-price selling and DTC mix offsets higher freight costs and some product cost inflation (we include gross margin quarterly bps drivers in Fig 5). On a 2-year stack basis, product costs have deleveraged 240bps or more in each of the last two quarters. We see SG&A dollars growing +10% y/y to 31.1% of revenues (+204bps y/y). Ultimately, this drives EPS of $0.75 vs consensus of $0.63 – we model a 100bps impact from FX.”

Nike Stock Price Forecast

Twenty-two analysts who offered stock ratings for Nike in the last three months forecast the average price in 12 months of $183.71 with a high forecast of $213.00 and a low forecast of $160.00.

The average price target represents an 11.07% change from the last price of $165.40. Of those 22 analysts, 18 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $206 with a high of $372 under a bull scenario and $119 under the worst-case scenario. The firm gave an “Overweight” rating on the footwear and apparel seller’s stock.

“Production shortfalls & transit delays likely make for an in-line 2Q & reiterated FY guidance. We’re focused on production ramp-up status, inventory levels, tactics to offset supply chain headwinds, & China sales trends. We remain bullish given compelling L-T growth opportunity. Raise price target to $206,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

“Nike (NKE) is in the early innings of transition from a wholesaler to a DTC brand. Success would make it one of few to benefit from the shift to eComm (~20% of ‘21 sales). Its DTC business (~37% of ‘21 sales) is igniting its next phase of margin-accretive revenue growth, driving a 16% 5Y EPS CAGR. NKE also stands to benefit from advancing global consumer activewear demand (due to the WFH-induced preference for comfort-oriented apparel/footwear and increased focus on health & wellness). NKE’s strategic portfolio decisions, tech investments, and supply chain innovation also create LT competitive advantages, and are further supported by an industry-leading balance sheet.”

Several other analysts have also updated their stock outlook. Cowen and company lifted the target price to $189 from $180. Deutsche Bank raised the target price to $199 from $166. BofA Global Research increased the price objective to $170 from $160.

Technical analysis suggests it is good to buy as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

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