Reports Q3 2021 results on Thursday, March 18, after the close
Revenue Expectation: $ 11.03 billion
EPS expectation: $ 0.76
When the world's largest sportswear company, Nike (NYSE :), reports its final earnings tomorrow, investors will be keen to know if the sales recovery that started last spring is still gaining momentum.
The maker of Air Jordan and Air Force 1 sneakers benefited immensely from the shift of the customer to its e-commerce platform during the pandemic, which forced the global brand to close its stores. Digital sales are up about 80% in the previous period, giving a strong boost to sales and profit margins.
But the booming digital business through Nike's websites and mobile apps wasn't just because more people started shopping online. Even before the pandemic, the company invested heavily to expand its online presence and reduce its reliance on its physical activities.
In 2019, it lowered the number of wholesale stores that could sell its goods, and parted ways with Amazon.com (NASDAQ :). It had also invested in apps for shopping, selling sneakers, and guided workouts.
The success of this strategy helped restore investor confidence quickly during the pandemic, as stocks rebounded from the coronavirus-caused decline. The Beaverton, Oregon-based company gained about 40% in 2020, outperforming the company, which rose 18% in the same period.
Nike Weekly Chart.
However, the pace of these gains has slowed this year, indicating that investors are finding Nike stock a bit expensive after last year's rally.
Expand Market Share
Nike Stocks closed Tuesday at $ 144.65, making the stock up just 2% since the start of the year. The moderate response in 2021 could reflect Nike's projected price-earnings ratio of 37, compared to a five-year average of 29.37. Despite these concerns, we continue to believe that Nike is in an excellent position to expand its market share as the retail turmoil caused by the pandemic begins to dissipate.
Many analysts remain optimistic about Nike stocks and see even more gains in store. Morgan Stanley's Kimberly Greenberger said Nike is one of the leading apparel and footwear companies whose business model, total addressable market and margin profile will look better once the pandemic is over.
“While we expect continued short-term COVID-19 headwinds throughout the remainder of NKE's fiscal year 2021 (ending May 21) until a vaccine is widely available, we emphasize NKE's commitment to and initial implementation of its Consumer Direct Acceleration strategy. Reinforce our belief in its long-term sales and margin expansion story. "
Bottom Line
After last year's vigorous rally, many investors took a break and waited on the sidelines to see how the current year plays out for the sportswear giant. We think Nike will report another strong quarter and could raise its outlook for the fiscal year 2021, given the muscular economic recovery taking shape in both the US and China.
These factors, in our opinion, make Nike an attractive stock to buy and hold in a long-term portfolio.
