Nike Q4 preview: Where next for Nike stock?

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Josh Warner
By : ,  Market Analyst

When will Nike release Q4 earnings?

Nike is scheduled to release fourth quarter and full year earnings covering the three-month and 12-month periods to the end of May after US markets close on Monday June 27.

Management will hold a conference call that will start at 1400 PT.

 

Nike Q4 earnings consensus

Wall Street forecasts Nike will report a 1.2% year-on-year decline in revenue in the fourth quarter to $12.2 billion, with diluted EPS expected to drop over 10% to $0.84.

If achieved, that puts Nike on course to deliver a 4.8% rise in annual sales over the full financial year to $46.7 billion and a 3.7% increase in EPS to $3.69.

 

Nike Q4 earnings preview

Nike is expected to report a rare dip in quarterly sales and earnings when it releases fourth-quarter results this week, but this will be largely down to an extremely tough set of comparative figures from the year before – when revenue almost doubled from the prior year and earnings rebounded from pandemic-induced losses.

The strong comparatives, driven by North America, as well as the widely reported supply chain problems stemming from Covid-19 lockdowns in China will have been a problem in the fourth quarter, but the focus will be on how both are faring going forward. The hope is that problems on the supply side are easing now that China has eased restrictions, although the country’s zero-tolerance approach to the virus means there is still some uncertainty over the outlook. Meanwhile, concerns are now growing about how demand will fare and whether Nike will be hit by any curtailment in consumer spending as inflation fuels a cost-of-living crisis.

Inventory levels are also worth watching. Nike has warned that transit times are taking considerably longer now than this time last year, and up to six weeks longer than what was being seen before the pandemic. Any limitation on inventory could hamper demand and prevent any upside to sales, but Nike still needs to manage this carefully considering it is focused on selling items at full-price.

With this in mind, inventory levels rose to $7.7 billion at the end of the third quarter compared to just $6.5 billion at the end of the second, and around two-thirds of that was in transit. That was the result of stockpiles building up due to longer lead times and the fact Nike is in possession of products for an extended period of time as they take longer to get them to customers. Analysts believe inventory levels will have dropped to just over $7.0 billion at the end of May, suggesting transit times have improved and supply chain disruption has eased. Markets expect this will continue to decline to around $6.75 billion by the end of first quarter of the new financial year.

Nike’s margins have so far proven resilient amid the pressure on costs, with the company having successfully offset the likes of higher freight rates and logistics costs by selling fewer goods at markdown prices and increasing the value of its products. That trend is expected to have continued in the fourth quarter with analysts expecting it to nudge up 100 basis points from the previous quarter to 46.7%.

The initial outlook for the new year will be highly influential on how markets receive the update, with analysts currently expecting Nike to return to growth in the first quarter and for that to accelerate as the year goes on. Wall Street has currently pencilled-in a 10% rise in annual sales in the 2023 financial year and a 21% jump in EPS.

Nike confirmed just this week that it plans to make a full exit from Russia after suspending operations earlier this year following the country’s invasion of Ukraine. It said operations would be scaled down over the coming months.

 

Where next for NKE stock?

Nike shares have remained under pressure since late last year and hit a 22-month low of $103.46 in late May. That should be treated as an initial floor that must hold to avoid bringing in the highs and low seen during the three months to August 2020, first to $102 and then to $93.70. The RSI is in bearish territory to suggest the stock could come under further pressure, supported by the fact trading volumes have seem a sizeable increase whilst finding lower ground over the past five sessions.

On the upside, the stock has struggled to make a sustained move above the 50-day moving average since the start of 2022, making this the first level to recapture at $118. It can then target the June-high before bringing the 100-day moving average at $127 into the crosshairs. A break above $139, which proved a key level of resistance on several occasions between February and April, would be more significant as it paves the way for a return back above the $150 mark. The 37 brokers that cover Nike believe the stock is undervalued, with an average Buy rating and target price of $151, implying there is over 42% potential upside from the current share price.

NIKETACI

 

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