A few hours before the release of Nike’s results at 10:15 PM CET yesterday, 24 out of 30 financial analysts were recommending that its shares should be purchased, according to the Wall Street Journal, giving an average price target of $163.34 against a current stock market price of around $134 per share.
They were right to do so. We shall send a detailed report on Nike’s results to our subscribers this afternoon. They showed a net profit of $1.5 billion, or 93 percent per diluted share, for the fourth quarter ended May 31, against a loss of $790 million, or 51 cents per share, in the year-ago period, due to the Covid-19 pandemic. Revenues nearly doubled to $12.3 billion from $6.31 billion, thanks in part to delayed shipments that were due to be made during the third quarter.
That was much better than the analysts’ estimates. Most of them were predictinge a profit per share of around 51 cents on an increase in revenues of around 80 percent to $11.05 billion. In general, analysts were expecting the company to report on a strong recovery in the last few months, after a weak initial post-pandemic performance.
Nike’s stock price has dropped by 11 percent after reaching a record level of $147 in January. It will be interesting to see the opening stock price on the New York Stock Exchange later today, but it will certainly record a major increase.
Some analysts were wondering about the effect of Nike’s attitude against the alleged human rights violations in the Xinjiang region on its highly profitable business in China. Cowen Research noted that searches for Nike products on Baidu have falled sharply since April, but Sam Poser of Williams Trading said its “checks indicate that Nike sales in China remain strong” in the face of local calls for boycotting Western brands.
According to another analyst, Brian Gilmartin of Alpha, its clients wanted to hear about Nike’s guidance for the full financial year ending in May 2022 before buying shares in the company. The general consensus for the year just ended was that Nike would report EPS of $3.14 for the year, up sharply from $1.60 for the prior year, on sales of $43.26 billion, up from $37.4 billion.
The actual figures were higher. Nike posted a net profit of $5.73 billion, or $3.56 per share, for the year, on 19.1 percent higher revenues of $44.54 billion. We should provide more details later today, including information given by the management during its conference call with the analysts.
Besides the U.S. government’s recent consumption stimulus, positive factors going forward are the generally improving world economy, the current vaccination campaigns in many countries, the fact that children are returning to schools and the resumption of tream sports. In particular, Nike will be one of the beneficiaries from exposure to the UEFA Euro football championships and the Tokyo Olympics this summer.
Before the release of the company’s results, UBS had reduced its price target for Nike slightly to $170 from $175, but Morgan Stanley had lifted it to $185 from $172, predicting that only short-term Covid and China-related headwinds could affect its results of the first quarter. One of its analysts, Kimberly Greenberger, noted a few days ago that the “the business’ long-term revenue, margin expansion and EPS growth story remains in early innings.”
Last month, Morgan Stanley had warned that Adidas and Puma have apparently been gaining market shares in the U.S. market, which is still dominated by Nike. It cited a recent online survey of 1,500 people aged 15 to 54 who purchased athletic footwear or apparel in the previous 12 months, which showed that Adidas had become the leading brand for the first time, slightly ahead of Nike. It found that Puma had also gained ground as compared to the results of a similar survey conducted in 2019.
In the end, most of Nike’s revenue growth in its fourth quarter came from the North American market, were sales jumped by 141.1 percent, indicating that the brand is still very strong there. Sales in Greater China were up by 14.5 percent.