Analysts are warning investors to brace themselves for less-than-stellar results next week when Nike reports earnings for the fourth quarter on June 27.
Like other global retail brands, the athletic-wear giant has faced the gamut of headwinds in recent quarters, including factory and store shutdowns in China and Vietnam, supply chain slowdowns and port congestion in the U.S. Previously, months-long factory closures throughout last summer and beyond led to almost two months of no unit production in Vietnam for Nike. More recently lockdowns in Shanghai and other key areas put the country at the center of COVID challenges for the brand.
In its 10-Q form filed with the SEC In April, Nike said the recent COVID-19 resurgence in Greater China made the company experience “a higher level of temporary store closures, with some operating on reduced hours, as well as lower physical traffic versus pre-pandemic periods.” Nike also operates a headquarters in Shanghai.
Ahead of its next earnings report, analysts say investors should remain cautious on the stock and the outlook of the brand for fiscal year 2023.
“In spite of ongoing strong demand for Nike product, Covid related lock-downs in China, increasing foreign exchange headwinds due to the strong U.S. dollar, and ongoing supply chain logistic problems will pressure both sales and margins in Q4 and the full-year of 2023,” wrote Williams Trading analyst Sam Poser in a note to investors, adding that he expects full year 2023 EPS and revenue guidance to come in below estimates. “Nike remains one of the best brands anywhere, but the Nike stock does not share, and should not share, that elevated status.”
Baird Equity Research analysts also lowered Nike EPS and price target for similar reasons, but said a positive update from China could make for stronger trading results. Morgan Stanley analysts also said they expect to see a Q4 earnings miss due to the “longer-than expected Covid-related” lockdowns that began in March in Greater China. Morgan Stanley does not expect to see a resolution in the region soon and said fiscal year 2023 could potentially be a “transition” year before Nike gets on track with its long-term targets.
Despite the headwinds, analysts said that the transition to DTC across all regions will help offset declines. In Q3, Nike’s direct sales were $4.6 billion, up 15% on a reported basis and up 17% on a currency-neutral basis. Nike’s digital sales grew 19%, driven by a 33% growth in North America. Sales in Nike-owned stores were up 14% while wholesale revenues declined 1% on a reported basis but were up 1% on a currency-neutral basis.