Nike (NKE) Stock Falls On a Revenue Miss and Slashed FY Sales Outlook, Analysts Bullish Despite NT Supply Chain Challenges

September 24, 2021 5:50 AM EDT
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Price: $162.14 -1.01%

Rating Summary:
    40 Buy, 10 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 7 | Down: 12 | New: 18
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Nike (NYSE: NKE) stock price is down is nearly 5% in pre-open Friday after the company reported lower-than-expected FQ1 sales and cut the full-year outlook.

Nike reported an FQ1 EPS of $1.16 to bear the analyst estimate of $1.11. Revenue for the quarter came in at $12.2 billion versus the consensus estimate of $12.46 billion.

Direct sales came in at $4.7 billion, which is up 28% compared to a year-ago period. Nike Brand digital sales soared 29%. The gross margin increased to 46.5%.

“NIKE’s strong results this quarter are continued proof of our deep consumer connections, unrelenting innovation pipeline and a digital advantage that fuels our brand momentum. We have the right playbook to navigate macroeconomic dynamics, as we create value through our relentless drive to fuel the future of sport,” said John Donahoe, President and CEO, NIKE.

The company has struggled with the supply chain amid factory closures in Vietnam.

"In Vietnam, nearly all footwear factories remain closed by government mandate. Our experience with COVID-related factory closures suggest that reopening and ramping back to full production scale will take time," Nike Chief Financial Officer Matthew Friend said.

On the guidance front, Nike said it now projects a mid-single-digit increase in 2022 full-year sales growth, compared to the low-double-digit increase it had previously communicated.

Telsey Advisory Group analyst Cristina Fernández slashed the price target to $176.00 from the prior $180.00 on the Outperform-rated Nike. Despite inventory shortages, Nike said the demand remains robust.

“Nike shares are likely to remain choppy in the near-term until there is more certainty on the restart of production in Vietnam and the ramp back to full capacity. We remain positive on the story 12-months out as demand for Nike's products remains strong and the company's LT outlook (HSD annual revenue growth and a high-teens operating margin) remains unchanged. Specifically, Nike should continue to benefit from enhanced connections with consumers through its membership program, higher full-price selling, greater use of data across the organization, and a more integrated strategic wholesale model through the One Nike Marketplace initiative,” Fernández said in a client note.

UBS analyst Jay Sole echoed Fernandez’s thoughts as he also believes the near-term supply chain issues won’t alter the long-term outlook for the Buy-rated NKE. For Sole, the price target remains at $185.00 per share.

“Nike's 1Q22 report was disappointing because it showed supply chain challenges are weighing more heavily on Nike's near-term earnings than expected. Despite this, our view on the stock remains bullish since we think supply chain issues will get resolved soon and the long-term demand outlook is intact. Nike's 1Q22 results indicated China demand is not worse than feared and North America demand remains robust. We expect Nike to rebound in FY23 and continue to forecast Nike delivering an 18% 4-yr. EPS CAGR,” Sole said in a note sent to clients.

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