NKE Stock: Why Nike Fell Last Week?
03 Julho 2023 - 2:51PM
Finscreener.org
Nike (NYSE: NKE) is among
the most recognizable brands in the world. Valued at a market cap
of $170 billion, Nike stock has returned 293% to shareholders in
the last decade, compared to the S&P 500 gains of 231%. But
the retail giant has grossly underperformed markets in the last
three years. Since July 2020, NKE stock is up just 15%, while the
S&P 500 index is up almost 50%.
Let’s see if Nike is a good stock
to buy right now.
Nike stock disappoints in fiscal Q4 of 2023
Shares of Nike fell last week
after the company announced fiscal Q4 of 2023 results that ended in
May. The company reported sales of $12.8 billion, an increase of 5%
year over year. It was, however, better than estimates of $12.6
billion. Comparatively, adjusted earnings per share fell 27% to
$0.66 per share, also below consensus estimates of $0.67 per
share.
Nike Direct saw sales increase by
15% to $5.5 billion as the company continued to shift away from its
wholesale distribution channel. Additionally, wholesale revenue was
down 2% at $6.7
billion.
Nike generates two-thirds of
total sales from footwear, which were up 16% year over year in the
last 12 months. However, footwear sales were up just 10% in Q4 of
fiscal 2023.
Direct-to-consumer sales also
allow Nike to benefit from higher profit margins. However, an
inflationary environment which led to a rise in input costs and
higher markdowns, meant Nike’s gross margins fell by 140 basis
points to 43.6% in Q4. Nike’s operating expenses surged by 8%,
meaning its operating income fell 17% to $1.22 billion.
Nike Direct CEO John Donahoe
stated, “NikeU+02019s strong results make clear that our strategy
is working. [Fiscal year 2023] was a milestone year for Nike as our
unique advantages continue to drive competitive
separation.”
Nike expects sales between sales
in fiscal 2024 to grow by mid-single-digit percentages. As
inflation is likely to cool down, its gross margins might expand by
145 basis points year over year, allowing the company to end fiscal
2024 with adjusted earnings of $3.85 per share.
Is NKE stock a buy right now?
Priced at 28 times forward
earnings, Nike stock trades at a premium. Investors remain worried
about the management’s outlook on a higher cost base, which could
negatively impact profit margins.
Analysts expect Nike’s earnings
to rise by 7.5% annually in the next five years, which suggests the
stock is overvalued. Nike also expects favorable transportation
costs and sell-through merchandise prices to impact the bottom
line positively.
Nike is a retail behemoth with
over $51 billion in total sales. But it remains vulnerable to macro
shocks and uncertainties. For instance, the cost of living crisis
in the U.K. and Europe has resulted in soft demand for Nike in
recent quarters.
Alternatively, Nike’s focus on
digital expansion and improving inventory levels is likely to
re-accelerate profit margin improvement.
In a nutshell, NKE stock seems
expensive at its current price, which means investors should not be
overly bullish on this retail heavyweight.
Analysts remain bullish on Nike
stock and expect shares to surge over 20% in the next 12
months.
Nike (NYSE:NKE)
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