Nike, Inc. (NYSE:NKE) – 5 Nike Analysts Praise Third Quarter Results and Booming Sales Growth in North America

Nike Inc. (NYSE:NKE) Shares gained 4.3% on Tuesday after the company reported lower fiscal third-quarter earnings, driven by strong North American demand in an uncertain international market.

On Monday, Nike reported third-quarter adjusted EPS of 87 cents on revenue of $10.87 billion. Both figures topped analysts’ consensus estimates of 71 cents and $10.59 billion, respectively. Revenue increased by 5% compared to a year ago.

Sales in North America increased 9% in the third quarter, while sales in China fell 5%. Gross margins improved slightly to 46.6% from 45.6% a year ago. Nike said supply chain disruptions boosted its inventory levels 15% year-over-year to $7.7 billion.

Looking ahead, Nike reiterated its previous full-year guidance for sales growth in the single-digit percentage range.

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Impressive fundamentals: Wells Fargo Analyst Kate Fitzsimons said Nike’s third-quarter numbers are a strong reminder that the company has impressive underlying business fundamentals.

“With sentiment on NKE worsening in recent weeks amid headwinds from China and uncertainty in Europe, we expect the 3Q print to give the ‘clear’ signal to be bullish for the FY23 as advanced brand DTC strategies and improved inventory position NKE for a turnaround in sales and EPS in FY23 (including China) and for its top EBIT+HSD-LDD margin outlook line/high-teens through FY25,” Fitzsimons wrote.

BMO Capital Markets Analyst Simeon Siegel said Nike’s direct-to-consumer business may not have the positive impact on margins that investors were hoping for.

“While the global macro economy clearly matters and we continue to challenge the belief that DTC drives higher profitability (for any brand, i.e. not specific to NKE), we continue to believe that business size and scale represent long-term competitive advantages,” Siegel wrote.

Telsey Advisory Group Analyst Cristina Fernandez said it remains positive on continued demand for Nike’s products, and its long-term growth prospects are attractive.

“Nike should continue to benefit from improved consumer relationships through its membership program, strong full-price sales, greater use of data across the organization and a more strategic wholesale model. integrated through the One Nike Marketplace initiative,” Fernandez wrote.

Patience required: Morgan Stanley analyst Kimberly Greenberger said Nike reported a high-quality earnings pace, but repricing the stock will take patience.

“Improving trends in China are encouraging, but underlying demand trends will likely remain clouded through the summer, pushing back the revaluation catalyst,” Greenberger wrote.

Bank of America Analyst Lorraine Hutchinson said Nike is successfully managing factors within its control, but the macroeconomic environment remains a near-term risk.

“Mgmt’s outlook calls for sequential improvement in Q4, but we continue to be unconvinced that the demand situation and margin profile in China has inverted,” Hutchinson wrote.

Notes and price targets:

  • Morgan Stanley has an overweight rating and a target of $192.
  • Wells Fargo has an overweight rating and a target of $165.
  • BMO Capital Markets has an outperform rating and a target of $150.
  • Telsey Advisory Group has an outperform rating and a target of $170.
  • Bank of America has a neutral rating and a target of $140.

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Sallie R. Loera