Will the Nike share price get fresh legs post earnings?

The Nike [NKE] share price climbed 25% from $115.47 at the close on 17 September 2020 to $144.29 at the close on 17 March this year.

Despite retail stores around the globe being closed during lockdown Nike benefited from more online demand as home workers put on leisurewear when sat behind their desks and sportswear for their kitchen workouts.

The Nike stock price did slow falling to $128.20 at the close on 18 June as new COVID-19 variants began to spread and the threat of further lockdowns loomed large.

The Nike share price found new puff however after encouraging fourth-quarter results as stores re-opened. It reached $173.56 at the close on 5 August.

However, it was hit by supply chain squeezes and a COVID-19 outbreak in its key manufacturing site in Vietnam. This knocked the Nike share price down to $156.42 at the close on 17 September.

The Nike stock price has grown by 35% from mid-September last year. This compares with peers such as Lululemon [LULU] up 40.7% over the same period, and Adidas [ADDYY] up merely 1.2%.

In the same period, the S&P 500 has rose 32.1%.

Nike has a 3.34% weighting in the Global X Millennial Consumer ETF [MILN] that rose 46% over the past 12 months, and a 3.19% weighting in the Global X Health & Wellness ETF [BFIT] that climbed 38%.

Lululemon has a 2.48% weighting in the VanEck Retail ETF [RTH] which rose 24% over the past 12 months and a 3.72% weighting in the Global X Health & Wellness ETF.

Investors will be assessing whether the Nike share price can keep pace with its peers when it releases its first-quarter earnings on 23 September.

Beaten expectation in Q4

In the fourth quarter Nike reported revenues up 96% to $12.3bn compared with the same period in 2020 and up 21% on the same period in 2019.

Direct-to-consumer sales – both online and in company operated stores – rocketed 73% to $4.5bn and diluted earnings per share (EPS) came in at $0.93 compared with a $0.51 loss in 2020.

The company said the reopening of stores and sport helped demand.

The figures were a beat on Zacks expectations of $11.08bn revenues and earnings of $0.50. Nike’s shares shot higher from $133.38 at the close on the day of the announcement on 24 June to $154.10 at the close on 25 June.

“FY21 was a pivotal year for Nike as we brought our consumer direct acceleration strategy to life across the marketplace. Fuelled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for Nike’s long-term growth” - John Donahoe, Nike's president and CEO

“Nike’s strong results this quarter and full fiscal year demonstrate Nike’s unique competitive advantage and deep connection with consumers all over the world,” said John Donahoe, the company’s president and CEO. “FY21 was a pivotal year for Nike as we brought our consumer direct acceleration strategy to life across the marketplace. Fuelled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for Nike’s long-term growth.”

The China effect

Analysts expect Nike to report $12.46bn in first quarter revenues, which would mark 17.5% year-on-year growth with EPS coming in at $1.11, up 16.8%.

One area of key interest in the results will be China, where Nike has 7,000 stores. Its sales grew by only 17% there in the fourth quarter compared with 124% growth in Europe, Middle East & Africa and 141% in North America.

That’s attributed to a backlash against foreign brands complaining about forced labour in China’s northwest Xinjiang region but also increased competition from Chinese brands such as Li-Ning.

Investors will also look out for updates on the recent COVID-19 outbreak in one of its Vietnamese manufacturing sites, which has hit production, and comments about any impact from global supply chain squeezes and higher transportation costs.

Signs of any changes in customer behaviour such as less online demand or less need for leisure clothes as people head out to the office and pubs again will also be closely watched.

That said, Donahoe remarked in the fourth-quarter earnings call, there are plenty of tailwinds for the group to look out for such as the return to sports and consumers shifting towards health and wellness especially post-pandemic.

“Nike needs to keep innovating, and it needs to get its products out quickly. Empty shelves, virtual or otherwise, will cause disquiet if they persist beyond a couple of weeks. But this is a company that’s emerged from the pandemic in a stronger position from where they went in and the position before was pretty strong” - Danni Hewson, financial analyst at AJ Bell

Analysts remain bullish with a ‘buy’ rating and an average target price of $184.19.

Morgan Stanley has a $221 target price and an ‘overweight’ rating despite stating that Nike has already “told retail partners that it may not be able to meet retail first quarter shipments due to Vietnam supply chain challenges and will likely pursue price increases to offset rising freight and raw materials prices,” as reported by Street Insider.

On Capital.com Danni Hewson, financial analyst at AJ Bell, added: “Nike needs to keep innovating, and it needs to get its products out quickly. Empty shelves, virtual or otherwise, will cause disquiet if they persist beyond a couple of weeks. But this is a company that’s emerged from the pandemic in a stronger position from where they went in and the position before was pretty strong.”