Nike’s shares catapulted $20.75, or 15.5 percent, to $154.35 on Friday after the sneaker giant reported earnings came in well above Wall Street’s targets for the quarter ended May 31 and issued bullish growth targets over the next four years through FY25. Analysts roundly hiked their price targets, with many seeing the strong performance as evidence that Nike’s digital transformation is gaining traction.
Highlights of Q421 results include:
- Fourth-quarter revenues were $12.3 billion, up 96 percent on a reported basis and 88 percent on a currency-neutral basis. Sales increased 21 percent compared to the fourth quarter of 2019. Sales topped Wall Street’s consensus estimate of $11.1 billion. The year-over-year gains were driven by a strong rebound in wholesale shipments and Nike-owned store performance as pandemic-related store closures were anniversaried. Nike Digital grew 37 percent year over year.
- Gross margin in the quarter increased 850 basis points to 45.8 percent versus the prior year, driven by favorable Nike Direct margins and the anniversary of higher pandemic-related costs.
- SG&A grew 17 percent year-over-year due to higher sports marketing expense as sports events returned, digital marketing drove digital demand, technology investments supported its digital transformation and wage-related expenses.
- Net income was $1.5 billion, 93 cents a share, nearly double Wall Street’s consensus estimate of 51 cents. In the year-ago quarter, Nike posted a net loss of $790 million, or 51 cents.
- Among its regions, Q4 revenue in North America grew 141 percent to $5.4 billion, marking the region’s first $5 billion quarter. Sales were up 29 percent compared to its fourth quarter of 2019. Nike Direct grew over 120 percent in North America as Nike-owned stores returned to positive sales growth versus pre-pandemic levels, but Digital growth continued to be strong, increasing 54 percent versus the prior year and 177 percent compared to the fourth quarter of 2019.
- In EMEA, Q4 revenues grew 107 percent on a currency-neutral basis to $2.98 billion with strong growth across the region, including the UK, Ireland, France, Germany, and Italy. Nike Direct grew 57 percent despite government restrictions requiring nearly half of its Nike-owned stores to remain closed for the first two months of the quarter.
- In Greater China, its Q4 revenue grew 9 percent on a currency-neutral basis, to $1.93 billion. After a strong March, its business was impacted in April by “market dynamics,” and marketing activities and product launches were suspended. Sales recovered to a single-digit decline in May and have sequentially improved into June, with month-to-date retail sales trends approaching prior-year levels.
- In the APLA region, sales grew 76 percent on a currency-neutral basis in the quarter to $1.46 billion. Growth was seen across all territories led by Japan, SOCO and Mexico. Korea grew double-digits in the quarter on top of the 8 percent growth in the year-ago fourth quarter. Nike Digital grew more than 50 percent.
- For the current fiscal year, Nike expects revenue to grow low double-digits and surpass $50 billion, reflecting strong consumer demand across operating segments. Its first-half growth is projected to be slightly higher than the second-half growth.
- Gross margin for the year is expected to expand 125 to 150 basis points, reflecting the continued shift to a more profitable Nike Direct business and sustained strong full-price realization, partially offset by higher product costs, supply chain investments and the annualization of certain one-time benefits in fiscal 2021.
- Nike’s outlook through fiscal 2025 calls for revenue growth to inflect upwards to a range of high single-digit to low double-digit growth on average, with a high-teens EBIT margin and mid-to-high teens EPS growth. Previously, Nike’s long-term targets called for high-single-digit revenue growth and mid-teens EPS growth.
- Nike Direct is approaching 40 percent of the brand’s revenues currently and expected to represent approximately 60 percent in fiscal 2025, led by growth in Digital.
- Owned and partnered digital is projected to achieve half of the business mix in fiscal 2025, with Nike-owned Digital expected to represent 40 percent of overall sales.
The following is a synopsis of analyst views on the quarter and Nike’s outlook.
»Stifel Raises price Target On Nike To $213
Stifel lifted its price target on Nike to $213 from $168 and kept its “Buy” rating.
Lead analyst Jim Duffy wrote, “We are encouraged to see NIKE punch through the mid-teens EBIT margin glass ceiling, and the multi-year view to FY25 is an affirmation of our thesis on business model transformation to a higher margin, higher return model. Relative to pre-COVID levels, multi-year guidance confirms that more direct engagement with consumers is accelerating growth (to HSD/LDD from +HSD prior), improving gross margin (3pts+ to high-40 percent vs. low <45 percent FY19) and delivering SG&A leverage (1pt.+ demand creation, additional from OH vs. FY19), and accelerating EPS (mid/high-teens vs. mid-teens). With confirmation benefits from the higher margin, higher return model are materializing in the P&L. We see NIKE deserving of a higher multiple.”
»BMO Lifts Price Target On Nike To $174
BMO Capital Markets raised its price target on Nike to $174 and reiterated its Outperform rating.
In a note, lead analyst Simeon Siegel wrote, “Despite fears heading into 4Q, NKE posted a broad-based beat, with better revenues and meaningfully better margins, for the highest 4Q EBIT margin in years (maybe ever?). Longer-term, management introduced meaningfully higher LT targets: HSD/LDD average annual revenue growth, driven by Women’s, Apparel, Jordan, Digital, and International. Although DTC should drive higher GMs, we continue to note Wholesale actually carries higher EBIT rates of the two (industry-wide), a topic we have done deeper work on. We continue to believe NKE’s size/scale offers compelling LT competitive advantage.”
»Williams Trading Hikes Price Target To $196
Williams Trading increased its price target on Nike from $189 to $196. The firm retained its “Buy” rating.
“The huge 4Q21 beat, better than expected FY22 guidance and a healthy growth plan through FY25 highlights Nike’s digital prowess, best-in-class customer engagement, enhanced by increasing use of data, and unrivaled product innovation continues to accelerate overall despite politically induced transient tensions in China and near term supply chain constraints,” wrote lead analyst Sam Poser.
Poser also wrote that its four-year outlook implies FY25 revenue of $65B and EPS in the $7 range. He said the Q421 results and forward guidance “reflect a new focus using its SG&A, selling expenses and overhead spending, to strengthen NKE’s brands over the long term while driving, through Digital, near term momentum. Through its ‘Consumer Direct Offense,’ the Nike, Jordan and Converse brands will continue to strengthen, margins will continue to expand, NKE will continue to take share and separate itself from its competition and more undifferentiated retailers are at risk of losing the NKE brands.”
»RBC Raises Price Target On Nike To $183
RBC raised its price target on Nike’s shares to $183 from $165 and retired its “Outperform” rating.
In a note, lead analyst Beth Reed called out its strong Q4 results and accelerated growth outlook driven by digital, women’s, apparel, Jordan, and international. She wrote, “Importantly, the company plans to grow direct to 60 percent of sales by FY25 (vs. 40 percent currently), which coupled with digital penetration targeted at 50 percent, points to GMs (gross margins) advancing to the high 40s with EBIT margins in the high-teens. It is clear that the compounding earnings growth story still has plenty of runway ahead.”
»Baird Lifts Price Target On Nike To $192
Robert W. Baird & Co. raised its price target to $192 and reiterated its “Outperform” rating.
Lead analyst Jonathan Komp highlighted “encouraging strength” across North America, EMEA, and Digital combined with a “much better-than-feared update” on Greater China. He noted that North America grew 29 percent against Q419, led by digital growth of 177 percent. EMEA sales grew 21 versus Q419 as pent-up demand in May offset store closures during March and April. Greater China increased 9 percent on a currency-neutral basis as a “sharp fall-off” in late March was followed by improvement in May and June and an encouraging Tmall event for the June 18 festival.
Komp wrote, “We maintain our positive view of NKE’s transformation to a DTC/digital-led organization which has driven customer engagement, elevated brand positioning and supported margin expansion with meaningful runway remaining. We expect NKE’s accelerated shift to a digital-led positioning supports visibility to a positive multi-year earnings outlook and return opportunity.”
»Cowen Raises Price Target On Nike To $181
Cowen increased its price target on Nike to $171 from $145 and reiterated its “Outperform” rating.
“Management’s confidence is hitting an inflection, and Q4 results (particularly in North America and EMEA) indicate the digitally-driven acceleration in the financial model,” wrote lead analyst John Kernan. “We see a path to a $300B market cap and $7+ in EPS as Nike’s Consumer Direct Offense creates an inflection for both the Nike and Jordan brands. Upside in Q4 was largely driven by North America.”
Kernan said the new long-term targets through FY25 reflect management’s confidence in its brand portfolio (Nike, Jordan and Converse). He also noted that the growth is expected to be fueled by secular trends favoring health & wellness, digital and a return to sport. The analyst said the FY22 guidance was “better than feared,” with growth expected to be driven by digital and continued scaling of physical store concepts and growth of strategic partnerships. Kernan wrote, “Greater China grew +13.9 percent on a two-year basis in Q4, a sequential deceleration from +43.5 percent in Q3:21, but management reports that region is showing sequential improvement from a trough in April and remains confident in China opportunity long-term.”
»Morgan Stanley Raises Nike’s Price Target To $214
Morgan Stanley raised its price target to $214 from $185 due to better-than-expected Q421 and FY21 results, the improved outlook for 2022 and the following three years, and updated EBIT margin assumptions.
Analyst Kimberly Greenberger wrote that its performance showed “DTC transformation improves its TAM (total addressable market), revenue growth, margin profile and EPS growth opportunity, the key tenant of our Overweight thesis.”
She noted that the strong showing came despite several expectations of an EPS miss on “well-flagged headwind in its historically fastest topline growing and highest EBIT margin geography, Greater China.”
Beyond Nike’s transition from a wholesaler to a digitally-driven DTC-brand, Greenberger’s “Overweight” rating reflects the fact that Nike stands to benefit from advancing global consumer activewear demand due to the work-from-home shift and increased focus on health & wellness.
Greenberger added, “Nike’s strategy portfolio decisions, tech investments and supply chain innovation also create LT (long term) competitive advantages and are further supported by an industry-leading balance sheet.”
Photos courtesy Nike