Nike: Strong, despite Running into Supply Chain Headwinds
Nike (NKE) delivered mixed fiscal Q1 results on Thursday. The designer, marketer, and distributor of athletic wear posted revenues of $12.3 billion in Q1, up 16% year-over-year, but missed analysts’ Read More... The post Nike: Strong, despite Running into Supply Chain Headwinds appeared first on TipRanks Financial Blog.
Nike (NKE) delivered mixed fiscal Q1 results on Thursday. The designer, marketer, and distributor of athletic wear posted revenues of $12.3 billion in Q1, up 16% year-over-year, but missed analysts’ estimates of $12.5 billion.
Diluted earnings came in at $1.16, up 22% year-over-year, and surpassed the Street’s estimate of $1.11 per share.
Considering the strong demand for Nike’s apparel and footwear, the company’s brand strength appears robust, and I remain bullish on the stock. (See NKE stock charts on TipRanks)
The company's outlook seems to be hampered by supply chain headwinds. Management had stated earlier that it was expecting transit times to remain longer for the rest of FY22.
It reiterated the same on its earnings call, and stated that transit times “deteriorated even further in the first quarter, with North America and EMEA seeing increases in transit times due primarily to port congestion and labor shortages.”
Nike’s management also added that many of its factory partners in Vietnam and Indonesia ceased operations in Q1. While the company’s contract factories in Indonesia are now fully operational, in Vietnam NKE’s factories are still closed.
As a result, Nike now anticipates FY22 revenues “to grow mid-single digits versus the prior year, versus our prior guidance of low-double digit growth.”
For Q2, NKE has projected “revenue growth to be flat to down low single digits versus the prior year, as factory closures have impacted production and delivery times for the holiday and spring seasons.”
China is an important market for Nike, and in Q1, the company’s sales in Greater China grew 11% year-over-year to $2 billion.
Cowen & Co. analyst John Kernan suggests that while Western brands are highly desired by people in China, “the trend has become much more volatile due to COVID and geopolitical tensions.”
Furthermore, Kernan believes that “China accounts for over 40% of future sales growth for Nike and Adidas (ADDYY), in our view.” Kernan has a Buy rating on the stock, and a price target of $181 (21.5% upside).
Nike also sources its apparel and footwear from contract factories in China. In FY21, China produced 24% and 19% of the company’s footwear and apparel, respectively.
Turning to the rest of the Street, analysts are bullish about Nike, with a Strong Buy consensus rating, based on 21 Buys, three Holds, and one Sell.
The average NKE price target of $185.13 implies approximately 24.1% upside potential from current levels.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
The post Nike: Strong, despite Running into Supply Chain Headwinds appeared first on TipRanks Financial Blog.