Nike reported second-quarter adjusted EPS of 83 cents on revenue of $11.36 billion. Both numbers topped consensus analyst estimates of 63 cents and $11.25 billion, respectively. Revenue was up 1 percent from a year ago.
North American sales were up 12 percent in the quarter, but China sales dropped 20 percent. Europe, Middle East, and Africa sales grew 6 percent .
Nike’s Vietnam factories are back up and running at 80 percent of pre-closure levels after many factories were shut down in recent months due to local COVID-19 outbreaks, according to the company.
Digital sales were up 12 percent from a year ago, including Nike Direct sales growth of 9 percent.
Looking ahead, Nike guided for third-quarter revenue growth in the low-single-digit range.
Nike’s Long-Term Growth Story
Morgan Stanley analyst Kimberly Greenberger said Nike will likely continue to deal with short-term disruptions in coming quarters, but its long-term outlook remains unchanged.
“NKE’s ability to deliver on guidance against the backdrop of unprecedented volatility lends credibility to NKE’s path back to its L-T growth & profitability algorithm,” Greenberger wrote.
Stifel analyst Jim Duffy said Nike’s execution has been impressive in a very difficult environment.
“We continue to view NIKE a category dominant global growth vehicle that is evolving to a higher return model and see NKE shares as a solid core holding for large cap growth investors,” Duffy wrote.
Telsey Advisory Group analyst Cristina Fernández said Nike’s inventory situation should continue to improve as Vietnam production capacity recovers to 100 percent.
“We remain positive on NKE 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,” Fernández wrote.
Wells Fargo analyst Kate Fitzsimons said Nike’s guidance is likely conservative, but China uncertainty will likely continue to be an overhang for the stock.
“While the 2Q print shows that NKE is navigating global supply disruptions well (canceled over 130M unit orders with 3 months of Vietnam factory closures), tougher results in China in 2Q and ‘less worse’ albeit likely still negative 3Q trends in the region are unlikely to be rewarded on the valuation front, especially considering the stock trading at a ~9-10x turn premium vs. pre-pandemic averages,” Fitzsimons wrote.
Truist Securities analyst Beth Reed said gross margins in the second quarter were particularly impressive.
“Importantly, we think supply chain issues and China weakness are not permanent and believe NKE is a best-in-class athletic play that will emerge from the pandemic as a more profitable company poised for longer-term outperformance,” Reed wrote.
Bank of America analyst Lorraine Hutchinson said Nike’s supply chain improvements are on schedule, but the China recovery is a question mark.
“Mgmt expects 3Q to improve, but our view on trends remains clouded due to the demand uncertainty following the Xinjiang cotton controversy,” Hutchinson wrote.
Nike Ratings, Price Targets
Morgan Stanley has an Overweight rating and lowered the price target from $206 to $202.
Truist Securities has a Buy rating and raised the price target from $190 to $196.
Stifel has a Buy rating and $202 target.
Wells Fargo has an Equal Weight rating and $175 target.
Telsey Advisory Group has an Outperform rating and $190 target.
Bank of America has a Neutral rating and $170 target.
By Wayne Duggan
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