Nike Q2 preview: Where next for Nike stock?

When will Nike release Q2 earnings?

Nike will release second quarter earnings covering the three months to the end of November after US markets close on Monday December 20.

Nike Q2 earnings preview: what to expect from the results

Wall Street forecasts that revenue will be broadly flat year-on-year in the second quarter at $11.25 billion, with analysts expecting 4.5% growth in North America will be offset by declines overseas. China is the main concern, with analysts expecting a 6% fall in sales.

A beat here would install some confidence that Nike is navigating the supply crunch and able to counter rising costs, and investors will also be keen to hear how successful Nike has been at overcoming these challenges in December during the key holiday shopping season. Digital and Direct-to-Consumer sales should remain resilient and continue to represent a bigger proportion of revenue.

Vietnam has been at the centre of the disruption. The country is a key manufacturing hub for Nike. It is only one of two countries where Nike has over 100 factories (the other being China) and these have been heavily impacted by lockdowns that were imposed in July and August. Restrictions started to ease in September, but several analysts have warned the recovery will be slow as the industry grapples with labour shortages and costly Covid restrictions. Bank of America warned this will remain a problem into 2022, while BofA Global Research said it could last for as long as six months.

Nike is expected to book a gross margin of 44.1%. That would be up from 43.1% the year before but down from the 46.5% booked in the previous quarter. Nike could also surprise here, with some analysts eyeing as high as 44.6%, as it has been focused on selling its apparel and athletic footwear at full price and has been offering fewer promotions.

Still, we could see freight costs peak in the second quarter if Nike has flown more stock in order to ensure it has the inventory it needs over the busy holiday season, especially into North America where demand remains strong.

However, profitability at the bottom-line is expected to come under pressure with analysts anticipating diluted EPS will fall to $0.63 from $0.78 the year before. Nike has delivered a strong improvement in EPS for five consecutive quarters but is forecast to continue falling in the third quarter.

Where next for NKE stock?

Nike shares have risen 17% since the start of 2021, outperforming the majority of rivals but lagging the 27% rise seen in the S&P 500 this year. That compares to the 9.9% increase in Lululemon shares and steep double-digit declines for VF Corp and European rival Adidas. Meanwhile, we have seen Skechers shares book a 23.4% gain this year while Under Armour has performed in-line with the wider market by booking a 28.9% rise.

Nike shares have slipped over 7% since hitting all-time highs in early November of $177.5, marking a key level for the stock to open the door to new highs. Brokers remain bullish on Nike’s prospects over the next 12 months, even if it is likely to be challenging. The 36 covering Nike have a Buy rating on the stock and an average target price of $181.18, implying there is 10.5% potential upside from the current share price and that Nike can hit fresh record highs. Notably, the most recent upgrades have been above the average, with Cowen & Co raising its target to $189 from $180 yesterday and Tesley Advisory Group upping its target to $190 from $176 this morning.

Nike shares hit a three-month low of $144.36 in late September, which may act as a floor that, if broken, could see the stock push lower.

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