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Category: Stock Market and Nike Inc
Date: 25 March 2020 Stock Price: $83.37 We take a look at the 3rd quarter 2020 earnings report of Nike Inc. the sporting apparel and accessories group. Has our stock target for them improved since our 2nd quarter 2020 stock valuation of Nike? And how will Coronavirus impact on the group's future earnings?
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About Nike Inc.
NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiary brands include Converse, which designs, markets and distributes athletic lifestyle footwear, apparel and accessories; and Hurley, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories
Overview of Nike's 3rd quarter 2020 earnings report
Data below refers to the latest quarter unless specified otherwise:
Nike Brand Revenues:
- Revenues $ 10.326 billion (up 10% from $ 9.374 billion for the same quarter of the previous year)
- Cost of sales: $5.782 billion (up 10% from $5.269 billion for the same quarter of the previous year)
- Gross profit: $4.544 billion (up 11% from 4.105 billion for the same quarter of the previous year)
- Net income: $1.115 billion (up 32% from $847 million for the same quarter of the previous year)
- Diluted earnings per share: $0.70 (up from $ 0.52 for the same quarter of the previous year)
- PE ratio of Nike Inc: 35.7
- Diluted number of shares outstanding: 1.594 billion (down from 1.620 billion for the same quarter of the previous year)
- Dividends declared per common share: $ 0.245 (up 10% from $ 0.20 for the same quarter of the previous year)
- Dividend yield of Nike: 0.98%
- Cash and equivalents: $3.070 billion
- Cash and equivalents per share: $1.92
- Cash and equivalents makes up 1.9% of Nike Inc's market capital
- Cash and equivalents makes up 11.54% of Nike Inc's total assets
- Accounts receivable: $4.792 billion
- Accounts receivable (money owed to the group) makes up 18% of Nike Ic's total assets
- Inventories: $6.199 billion
- Inventories makes up 23.3% of Nike Inc's total assets
- Shareholders’ equity in Nike Inc: $9.351 billion
- Shareholders equity per share: $5.86
- Nike Inc is trading at 17.1 times its stockholders equity. This is outside the usual range of between 2 and 4 times what most companies tend to trade at
Nike Brand Revenues:
- Footwear $ 6.206 billion (up 12% from the same quarter of previous year)
- Apparel $3.287 billion (up 8% from the same quarter of previous year)
- Equipment: $341 million (up 6% from the same quarter of previous year)
- Total: $9.844 billion (up 10% from the same quarter of previous year)
Nike's management commentary on their 3rd quarter 2020 earnings
BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYSE:NKE) today reported fiscal 2020 financial results for its third quarter ended February 29, 2020.
Revenues increased to $10.1 billion in the third quarter, up 5 percent on a reported basis and up 7 percent on a currency-neutral basis, driven by 13 percent currency-neutral growth in NIKE Direct with digital growth of 36 percent and strong growth across EMEA, APLA and North America, offset by the impact of COVID-19 on our business in Greater China. Digital sales in Greater China increased more than 30 percent while brick and mortar retail sales were impacted by temporary store closures related to COVID-19.
“In an extraordinarily dynamic time, NIKE’s strong results are testament to our deep consumer connections, compelling product innovation and agile teams around the world. We know it’s in times like these that strong brands get even stronger,” said John Donahoe, President and CEO, NIKE, Inc. “As we start to see recovery in China, no one is better equipped than NIKE to navigate the current climate.”**
Revenues increased to $10.1 billion in the third quarter, up 5 percent on a reported basis and up 7 percent on a currency-neutral basis, driven by 13 percent currency-neutral growth in NIKE Direct with digital growth of 36 percent and strong growth across EMEA, APLA and North America, offset by the impact of COVID-19 on our business in Greater China. Digital sales in Greater China increased more than 30 percent while brick and mortar retail sales were impacted by temporary store closures related to COVID-19.
“In an extraordinarily dynamic time, NIKE’s strong results are testament to our deep consumer connections, compelling product innovation and agile teams around the world. We know it’s in times like these that strong brands get even stronger,” said John Donahoe, President and CEO, NIKE, Inc. “As we start to see recovery in China, no one is better equipped than NIKE to navigate the current climate.”**
“As we close Q3, NIKE’s Brand leadership and business momentum have been stronger than ever and unrivaled around the world,” said Andy Campion, Executive Vice President and Chief Financial Officer, NIKE, Inc. “Amidst the dynamics that we are facing, we are executing against an operational playbook that will expedite NIKE’s return to profitable, capital efficient growth leveraging our strong financial position, the strongest partnerships across the value chain in our industry, and our leading digital capabilities.”
COVID-19 Update
As discussed in our press release issued on February 4, 2020, operations in Greater China were materially impacted as a result of COVID-19. In the third quarter, on a currency-neutral basis, Greater China revenues were down 4 percent following 22 consecutive quarters of double-digit growth. However, during the first two months of the third quarter, Greater China’s revenue grew strong double digits, offset by the impacts of COVID-19 beginning in late January. At the peak in February, roughly 75 percent of NIKE-owned and partner doors in Greater China were closed with others operating on reduced hours. Currently, nearly 80 percent of doors are open in Greater China with an even higher rate in key cities. Beginning March 16th, all NIKE-owned stores, outside of Greater China, Japan and Korea were closed to help curb the spread of COVID-19.
Share Repurchases
During the third quarter, NIKE, Inc. repurchased 9.6 million shares for approximately $957 million as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of February 29, 2020, a total of 43.3 million shares had been repurchased under this program for approximately $3.9 billion.
COVID-19 Update
As discussed in our press release issued on February 4, 2020, operations in Greater China were materially impacted as a result of COVID-19. In the third quarter, on a currency-neutral basis, Greater China revenues were down 4 percent following 22 consecutive quarters of double-digit growth. However, during the first two months of the third quarter, Greater China’s revenue grew strong double digits, offset by the impacts of COVID-19 beginning in late January. At the peak in February, roughly 75 percent of NIKE-owned and partner doors in Greater China were closed with others operating on reduced hours. Currently, nearly 80 percent of doors are open in Greater China with an even higher rate in key cities. Beginning March 16th, all NIKE-owned stores, outside of Greater China, Japan and Korea were closed to help curb the spread of COVID-19.
Share Repurchases
During the third quarter, NIKE, Inc. repurchased 9.6 million shares for approximately $957 million as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of February 29, 2020, a total of 43.3 million shares had been repurchased under this program for approximately $3.9 billion.
Nike Inc (NYSE: NKE) stock price history
The image below, obtained from Google, shows the stock price history of Nike Inc (NYSE: NKE) for the last 5 years. And its been a very good time for Nike Inc stockholders. 5 years ago it was trading at $50 and its currently trading at around $82.89 a share. That's a strong return of 65.8% over the last 5 years.
The stock of Nike is trading at close to the midpoint between its 52 week high and 52 week low, which to us is an indication that the short term sentiment towards the stock of Nike Inc is neutral, which is not bad considering how hard the markets have been hit in recent weeks. Read more about the market melt down in recent weeks here.
The stock of Nike is trading at close to the midpoint between its 52 week high and 52 week low, which to us is an indication that the short term sentiment towards the stock of Nike Inc is neutral, which is not bad considering how hard the markets have been hit in recent weeks. Read more about the market melt down in recent weeks here.
Recent coverage of Nike Inc
The extract below covers the latest earnings report from Nike as obtained from TheStreet.com
Nike (NKE) shares jumped more on Wednesday after the sports-apparel maker and retailer's third-quarter financial results led four different investment firms to produce bullish notes. The Beaverton, Ore., company came up short on earnings after a 25-cent-a share charge related to the coronavirus outbreak. But it beat revenue estimates. Nike shares at last check rose 11% to $80.58.
Stifel (Buy Rating Reiterated, Price Target Lowered to $90 from $110)
"China business-recovery trends are encouraging and Nike can apply the China playbook to other regions. NIKE is as well-equipped to deal with the crisis as any in our universe and has a thoughtful strategy for how to capitalize on the circumstances for the long term. Dislocation from the crisis, however, will impact earnings-power visibility into fiscal 2021 and global economic fallout could impede the revenue and earnings rebound in fiscal 2022," analyst Jim Duffy wrote.
Read the full article here
Nike (NKE) shares jumped more on Wednesday after the sports-apparel maker and retailer's third-quarter financial results led four different investment firms to produce bullish notes. The Beaverton, Ore., company came up short on earnings after a 25-cent-a share charge related to the coronavirus outbreak. But it beat revenue estimates. Nike shares at last check rose 11% to $80.58.
Stifel (Buy Rating Reiterated, Price Target Lowered to $90 from $110)
"China business-recovery trends are encouraging and Nike can apply the China playbook to other regions. NIKE is as well-equipped to deal with the crisis as any in our universe and has a thoughtful strategy for how to capitalize on the circumstances for the long term. Dislocation from the crisis, however, will impact earnings-power visibility into fiscal 2021 and global economic fallout could impede the revenue and earnings rebound in fiscal 2022," analyst Jim Duffy wrote.
Read the full article here
Nike Inc's (NYSE: NKE) stock valuation
So what do we value one of the worlds biggest clothing and apparel brands stock at following their latest earnings report? Based on Nike's latest earnings report for the 3rd quarter of their 2020 fiscal year what is our target price (full value price) of Nike Inc. stock?
Based on their latest earnings report our valuation models provides a target price (full value price) for Nike Inc at $61.90 a stock. We therefore believe Nike Inc stock is currently overvalued and we would not recommend long term fundamental and value investors buy into the stock at its current price. We usually suggest looking to buy at least 10% below our target price which in this case is $61.90. We therefore believe a good entry point into the stock of Nike Inc stock is at $55.70 or below.
We expect the stock of Nike to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months. And while the sell off sparked by Coronavirus fears has seen the stock of Nike pull back strongly, we believe the stock has some significant downside risk to it.
Based on their latest earnings report our valuation models provides a target price (full value price) for Nike Inc at $61.90 a stock. We therefore believe Nike Inc stock is currently overvalued and we would not recommend long term fundamental and value investors buy into the stock at its current price. We usually suggest looking to buy at least 10% below our target price which in this case is $61.90. We therefore believe a good entry point into the stock of Nike Inc stock is at $55.70 or below.
We expect the stock of Nike to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months. And while the sell off sparked by Coronavirus fears has seen the stock of Nike pull back strongly, we believe the stock has some significant downside risk to it.
Next earnings release of Nike Inc
It is expected that Nike Inc will release their 4th quarter and full fiscal 2020 earnings report in middle June 2020