Shares of Nike (NKE) have fallen 8.5% over the past thirty days, including 3.5% in the past five days. While shares are up 11% year to date, they trail the 19% rise in the S&P 500 index. However, Nike’s relative underperformance doesn’t reflect the operational excellence the company has displayed over the past several quarters.
While there is no doubt that the company has executed with great precision throughout the pandemic, leveraging its Direct to Customer strategy to beat its competitors, the stock valuation has been a major hurdle for many investors. But is now a good time to buy? There’s an opportunity here for patient investors to profit, given the company’s strong fundamentals. The global apparel and footwear giant can remove all doubt when it reports first quarter fiscal 2022 earnings results after the closing bell Thursday.
Some of the factors that has pressured the stock include supply chain issues concerns over the China boycott, e-commerce sales growth sustainability. There are also production disruptions in Vietnam that’s likely to impact the just-ended quarter. Nevertheless, Nike is still enjoying strong demand for its products across the globe as consumers develop an increased focus on health and wellness. Known for its strong brand name and innovation, investors on Thursday will look to see whether the athletic apparel giant can reassert itself as one of the better-performing names within the retail sector.
For the quarter that ended August, Wall Street expects the Oregon-based apparel company to earn $1.12 per share on revenue of $12.46 billion. This compares to the year-ago quarter when earnings came to 95 cents per share on revenue of $10.59 billion. For the full year, May 2022, earnings are expected to rise 21% year over year to $4.32 per share, while full-year revenue of $50.09 billion would rise 12.5% year over year.
The 21% expected rise in fiscal-year profits underscores not only the strength of Nike’s pricing power, but also strong effects Nike's digital transformation, where it leverages a suite of digital apps, has been a strong revenue driver for the company, has had on its margins. What’s more, the company’s improving efficiency within its supply chain, combined with efforts to use real-time consumer insights to create product updates for its popular products (process called Nike Express Lane) highlights the level of innovation that still exists at the company.
Also notable is the fact that, despite increased competition, Nike has delivered consistent growth over the past year. In the fourth quarter, Nike beat strongly on the bottom line, logging its twelfth consecutive beat in the past fourteen quarters, driven by e-commerce gains. Driven by 54% rise in digital growth, Q4 North American revenue was up 141%, topping the 29% rise in the year-ago quarter. What’s more, the fact that gross margin increased 850 basis points to 45.8%, beating consensus of 43.8%, dispelled the pressure analyst expected.
Ahead of the quarter there were concerns about softening demand in China and weaker orders for future quarters. But Q4 China revenue rose 17%, thanks to a 50% rise in equipment revenue. In other words, the recent decline in the Dow stocks, driven by external concerns, has overlooked the Nike’s value which lost almost 3% last week alone.
That said, on Thursday for the stock to reverse course, the management must issue strong revenue forecasts for the full year, suggesting the company is well-positioned to capitalize on the reopening of the U.S. economy as well as gross margin expansion for fiscal 2022.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio