Despite continued supply chain challenges, Nike’s fiscal second-quarter profit and sales were above expectations, resulting in a 3.3 percent increase in after-hours trading Monday evening. A year ago, the company made $1.34 billion in revenue, or 83 cents a share (2nd quarter of the year). According to analysts, the company’s profit per share would have been 63 cents.
The year prior, revenue was expected to be $11.25 billion but came in at $11.36 billion, above expectations of $11.25 billion. Nike’s (ticker: NKE) biggest market, North America, saw revenue rise by 12 percent, the most of any region. In an earnings call Monday night, the company said that rising customer demand, particularly for online products, had a positive impact on profitability. Digital sales accounted for 25 percent of Nike’s total worldwide revenue in the quarter, and about an 11 percent increase was observed over the same period last year. Nike raised its mobile platform investment last quarter.
Despite the recent rise in the stock, Trefis values Nike at $171 per share, a 4% premium to the current market price, on the basis of two major future scenarios.
Our initial focus is on Nike’s sales growth. Over the previous year, revenue grew by 16% to $12.2 billion. Sales climbed by 28 percent and 29 percent in direct and digital channels, respectively, as a result of strong demand. In fact, digital sales grew even while physical store sales recovered from the epidemic. Digital sales are still growing.
On the other hand, sales made directly to consumers tend to have higher gross margins. Consequently, it gives the company with more control over the sales process. Its total margins rose 1.7 percentage points to 46.5 percent, resulting in a 22% increase in first-quarter earnings per share to $1.16, according to the company’s latest financial statement. Sales at full price surpassed Nike’s own objective by more than 65 percent of all total sales. According to the figures, the company is on target to generate 40% of its revenue from owned digital sales by 2025.
Due to supply chain bottlenecks, Nike expects markdowns to be lower than typical for the remainder of fiscal 2022. Moreover, the company aims to hike prices by a low single-digit percentage to cover some of the additional supply chain expenses.
As a result of COVID-19-related facility closures, revenues in China and other Asian countries declined “mainly due to decreasing levels of available inventory,” according to the company’s earnings report. According to Nike, its inventory increased by 7% year over year to $6.5 billion. There have been production closures owing to a virus epidemic, as well as rising costs for delivering goods and compensating workers, which the company has revealed. While the S&P 500 and Dow Jones Industrial Average both rose by over 20%, Nike’s share price has only climbed by 10.6% so far this year.