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Nike earnings blew past expectations in part due to the popularity of its merchandise.
Nike
Nike Inc. stock surged 10.2% in Wednesday trading after it became one of the few companies to offer guidance, forecasting full fiscal year revenue that will be up in the high single digits to low double digits.
Previously, Nike NKE, +9.20% was guiding for revenue to be “flat-to-up” for the year.
Nike reported fiscal first-quarter profit and revenue that blew past analyst expectations for a “ho hum” quarter.
Nike has made some business decisions, like cutting back on wholesale distribution at retailers like Dillard’s Inc. DDS, +0.28% and Amazon.com Inc.’s AMZN, -2.95% Zappos e-commerce site and a staff reorganization, which the company says will have near-term repercussions.
The athletic giant is forecasting flat year-over-year gross margins and flat sales, general and administrative expenses.
“Stronger-than-anticipated demand for our brands will be constrained in the near term due to supply decisions we took in the face of the pandemic, with growth in the second half to be up significantly versus prior year,” said Chief Financial Officer Matthew Friend on the earnings call, according to FactSet.
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“Our gross margin outlook will continue to be a function of prioritizing a return to normalized inventory levels by the end of Q2. In the second half, we expect to begin seeing sequential improvement in full-price sales, but we do expect a continuation of higher markdown activity in our factory stores to sustain conversion rates on lower traffic.”
Analyst reaction was upbeat, with a number of research groups raising their price targets on Nike shares.
“Nike’s 1Q beat continues to showcase how the company’s size and scale offers a structural long-term competitive advantage deploying its moat-digging budget across research and development and marketing to go deeper into customers’ wallets, stretching its competitive set from athletic peers, to anyone that sells footwear and apparel, all while improving its direct and wholesale distribution,” wrote BMO Capital Markets analysts led by Simeon Siegel.
BMO rates Nike stock outperform with a price target of $134, up from $100.
“Clearly the shares are expensive, but they are expensive for a reason, and we expect them to continue compounding.”
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UBS analysts think Nike stock can continue to outperform. Shares are up 26% for the past three months compared with a 4.6% decline for the Dow Jones Industrial Average DJIA, -0.85%. For the year to date, Nike stock is up nearly 27%.
“The key is Nike’s transition to digital selling is happening much faster than we anticipated,” analysts led by Jay Sole say. “Importantly, we think this transformation is just getting started and will drive better-than-expected sales growth and margin expansion well into the out-years.”
UBS rates Nike stock buy with a $152 price target, up from $127.
Nike’s price objective was raised to $150 from $130 at Bank of America. Cowen analysts raised their price target to $145 from $134. And Raymond James lifted its price target to $140 from $121.
“The performance proves Nike’s focus on innovation and digitally led strategies are paying off in the current environment, while renewed emphasis on organizational efficiencies, improved fulfillment, and return on ad spend are likely to fuel optimism about multi-year margin potential,” wrote Baird analysts in a note.
Baird raised its price target to $135 from $115. However, analysts rate Nike stock neutral, striking a note of caution.
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“While highly encouraged, we see some risk of sentiment overshooting to the upside versus management’s reconfirmed long-term targets and would avoid chasing the stock near term.”
