A strong brand and product pipeline has enabled Nike (NKE) to raise prices and increase sales of both apparel and footwear, suggests John Staszak, editor of Argus Research, a leading independent Wall Street research firm.
We also believe that some retailers seeking to boost weak sales are turning to Nike to increase customer traffic, increasing NKE’s bargaining power as a supplier.
Meanwhile, in response to changing purchasing trends, Nike is beefing up its direct-to-consumer (DTC) channel (company-owned stores and website). We expect DTC sales to grow at a high-teens pace over the next two years.
Over the long term, we expect Nike to continue to dominate the athletic apparel and footwear market, and note that it has a particularly strong presence in high-end footwear thanks to its marketing strength and endorsements from famous athletes.
Although the industry remains fiercely competitive, we expect the company to build on its dominant position through its globally recognized brand, innovative products, economies of scale, and rapid growth in emerging markets.
On December 18, Nike reported fiscal 2Q21 revenue and EPS that topped estimates by wide margins. Revenue of $11.2 billion was up 9% from the prior year as reported and 7% on a currency-neutral basis. The consensus estimate had called for revenue of $10.54 billion.
Digital sales were up 80% in constant currency and revenue in China rose 19% in constant currency. NIKE Direct sales rose 30% to $4.3 billion, with strength in all regions.
We are raising our FY21 EPS estimate to $2.90 from $2.75 based on the much stronger than expected 2Q21 earnings and management’s full-year sales guidance. We are also raising our FY22 estimate to $3.80 from $3.70.
Over the long term, we expect growth at Nike to be driven by the Jordan Brand, which represents more than 12% of sales; continued innovation; expanding e-commerce sales, and renewed growth in China.
From a technical standpoint, the shares are in a bullish pattern of higher highs and higher lows that dates to October 2017. NKE trades at 38-times our revised EPS estimate for FY22. However, given ongoing strength in China and recovery in the U.S., we see continued upside and are raising our target price to $165.
