People walk outside a Nike store at a shopping area on April 8, 2021 in Beijing, China.
Kevin Frayer/Getty ImagesWhen Nike reports fiscal fourth-quarter earnings on Thursday, investors won’t just be looking for a beat. They’ll also be looking for signs of digital sales growth, improvements in supply chain execution, and, critically, assurance that geopolitical risks in China can be contained.
Nike (ticker: NKE) is expected to report a profit of 51 cents during its fiscal fourth quarter after losing 51 cents during the same quarter one year ago. Sales are expected to rise to $11.08 billion, up from $6.3 billion one year ago.
Hitting its numbers won’t be the biggest challenge for Nike, however. Back in March, in response to allegations of using forced labor, Nike announced that it would review its supply chain to assess risks related to the Xinjiang Uyghur Autonomous Region. Subsequently, the company released a statement affirming its code of conduct and confirming it “has not found evidence of employment of Uyghurs.” The move prompted widespread calls to boycott the brand in China, and the boycott may have had an impact: A report from Morningstar found that Nike’s Tmall e-commerce storefront experienced sales declines of 59% in April compared with the previous year.
All of this has added a layer of complexity for investors to consider. China has increasingly become an important part of Nike’s future; between 2015 and 2020, China went from accounting for 11% of revenue up to 19%, and it remains one of the fastest-growing regions, consistently outpacing the company’s global top-line growth rate by twofold. Because of the issue, Nike could take a conservative approach to fiscal 2022 guidance, according to UBS analysts, who also lowered fourth-quarter revenue growth projections in China from 25% to 8%.
China isn’t the only issue facing Nike. Struggles with supply chain delays hindered Nike’s third-quarter earnings, causing the company to miss out on around $500 million in revenue, according to UBS. And while supply chain execution has likely improved thanks to reduced Covid restrictions, the analysts warned investors to remain cautious about supply chain issues in North America that may continue to pose constraints on sales.
However, Nike’s third-quarter earnings report still gives reason for investors to remain optimistic heading into fourth-quarter earnings. The company reported year-over-year digital sales growth of 54% on a currency-neutral basis. Investors will be looking to see whether Nike can maintain momentum in digital and direct-to-consumer sales where it is more profitable.
Of the analysts who cover Nike, 87% rate it a Buy, 10% rate it a Hold, and 3% rate it a Sell with an average price target of $163.68, up 25.9% from Tuesday’s close of $132.39.
Shares of the sports apparel and equipment company are up 30.72% over the past year compared to a 35.5% gain in the S&P 500 index over the same period of time.
Write to editors@barrons.com
June 23, 2021 at 04:00PM
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Nike Reports Earnings Thursday. Here's What to Expect. - Barron's
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