Reports Q2 2022 fiscal results on Monday, December 20 after hours
Expected Revenue: $11.25 Billion
EPS forecast: $0.6308
When the world's largest sportswear company, Nike (NYSE:), reports its latest earnings later today, investors will likely hear a now-familiar story: Global supply chain disruptions exacerbate sales. due to COVID 19 outbreaks in Asia.
In late September, the maker of Air Jordan and Air Force 1 sneakers told investors that factory closures in Vietnam, longer transit times and labor shortages are dampening sales, even as consumers are ready to spend more on sportswear after last year's lockdowns and gym closures.
During the fiscal second quarter, Nike saw sales that were flat to low with low single digits. Analysts were looking for 12% revenue growth for the full year, as well as a 12% increase for the second quarter. But despite this highly unpredictable environment for consumer goods companies, Nike remains a preferred choice of analysts. Given rising consumer demand and the company's successful e-commerce push, more NKE upside is expected. the stock was rated "Outperform" with an average upward target of 10.50% on the share price over the next 12 months. Nike shares closed at $161.36 on Friday.
To provide perspective, for the period ending August 31, Nike produced its second-highest sales figure in three months, while earnings per share set a record for the Beaverton, Oregon-based company.
Expanding online sales
Another reason Nike has become a long-term buy: The global health crisis has accelerated the company's shift to e-tail sales. It has created a direct-to-consumer business that is not only efficient but also responsible for improving the company's profit margins. Over several quarters, Nike's online sales have increased by more than 80%, exceeding the company's target for revenue. from this segment. It now makes up 30% of total sales. Credit Suisse said in a note to customers Friday that it is seeing a rise in its shares of Nike after the company lowered its sales forecast. His note added:
“Our US retailer controls were strong over the holidays (despite some signs of inventory shortages) and we believe inventory allocated to direct-to-consumer (DTC) will positively boost Street N. America's revenue estimates in F2Q."
According to Goldman Sachs, the near-term uncertainty about growth should not discourage investors with a long-term investment horizon, as the company's stock always recovers after underperformance in the market. The investment bank said in a recent note:
"We think there may still be a stock benefit as Nike is likely to benefit from more wellness-focused customers, a likely increased easing of fashion trends after the pandemic, … the use of its rich customer data and suite of apps to drive membership and global demand.”
Goldman Sachs added:
“We see Nike's brand strength as the most important competitive advantage. While fashion cycles may affect market share in the short term, we note that brand strength will support Nike's market share in the longer term."
NKE shares are up 14% this year, after a 39% increase in the previous year. The Index is up 23% over that period.
Bottom Line
Nike stocks may face selling pressure in the shorter term as the company continues to face with offer. side issues as long as the pandemic rages on. That weakness should be viewed by investors as a buying opportunity, given the strength of Nike's brands and continued pressure to expand its low-cost online sales.
