Nike Inc. Sees Optimistic Rise in Shares Ahead of Q2 Results

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Shares of Nike Inc. have experienced a noticeable increase in value as investors express optimism ahead of the company’s fiscal second-quarter results. In midday trading, the stock has seen a 0.5% climb. Notably, Nike has enjoyed a 10.7% surge in December, positioning it for a third consecutive monthly gain and marking its best monthly performance since November 2022 when it saw an impressive 18.4% jump.

In comparison to other relevant market indicators, the Consumer Discretionary Select Sector SPDR ETF (XLY) has witnessed a 6.3% rally so far this month, while the Dow Jones Industrial Average (DJIA) has achieved a 3.4% gain.

As Nike prepares to unveil its results for the quarter ending November 30, anticipation drives the recent rally. However, while Wall Street maintains a generally positive outlook on Nike’s performance, this optimism may make the stock vulnerable upon the release of the results.

Wedbush analyst Tom Nikic reveals that recent discussions with investors regarding Nike have leaned surprisingly bullish. Many are intrigued by the company’s potential to accelerate revenue growth in 2024 due to streamlined sales-channel inventories. Investors firmly believe that profit margins will benefit from reduced freight costs, less discounting, and recent cost-cutting efforts.

Nikic shares his perspective on the matter in a recent note to clients stating, “While we largely agree with this viewpoint and find Nike to be a compelling investment story for 2024, it is vital to recognize that Nike has not yet reached its full potential.”

He points out that the brand was more promotional during Black Friday week compared to the previous year and highlights inconsistent sell-through trends for the Jordan brand.

Additionally, Nikic suggests that it may be challenging for Nike to raise its full-year sales guidance given the current landscape and expresses uncertainty about whether a simple reiteration of guidance will be sufficient, especially considering the stock’s recent strong performance.

During the first quarter, Nike management stated their expectation of mid-single-digit percentage range revenue growth for the full fiscal year. However, the current FactSet revenue consensus for fiscal 2024 implies growth of 3.7%.

Nike’s Stock Rating and Price Target

Nikic, an analyst, has maintained his outperform rating on Nike’s stock for the past two years. Despite expressing caution, Nikic still remains the second-most bullish analyst among the 36 surveyed by FactSet. The most bullish analyst, Brian Nagel from Oppenheimer, has set a price target of $150.

Analyst Estimates for Nike’s Second Quarter

Here are the average estimates compiled by FactSet for some key financial metrics of Nike for the second quarter:

  • Earnings per share (EPS) are expected to be 84 cents, slightly lower than the 85 cents reported in the same period last year. Nike has surpassed EPS expectations for 12 out of the past 13 quarters.
  • Revenue is predicted to increase by 0.6% to $13.39 billion. In the first quarter, Nike missed revenue expectations.
  • North America revenue is forecasted to be $4.81 billion, marking a 17.5% decline from last year.
  • Revenue for Europe, the Middle East, and Africa is expected to decrease by 2.4% to $3.41 billion.
  • Greater China revenue is projected to reach $2.13 billion, showing a growth of 18.9% compared to the previous year.
  • Revenue for the Asia Pacific and Latin America region is estimated to rise by 5.5% to $1.69 billion.

Nike also disclosed in its first-quarter report that it repurchased $1.1 billion worth of its stock as part of a four-year, $18 billion buyback program initiated in June 2022. This suggests that there is still $12.1 billion remaining in the buyback program.

Key Figures and Trends

Apart from the estimates mentioned above, there are a few other notable figures to keep an eye on:

  • The gross margin in the first quarter was 44.2%, up from 43.6% in the previous quarter.
  • The value of inventories at the end of August was $8.7 billion, which is a 10% decrease compared to last year. This figure remained relatively flat at $8.45 billion in the previous quarter.

Historical Stock Performance

According to FactSet data, over the past 10 quarters, Nike’s stock has shown mixed performance after the earnings results were announced. It has gained in value five times, with a median gain of 6.7%, and has declined in value five times, with a median loss of 6.3%.

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