Nike Q1 earnings: ‘I think this brand is still very solid’

Nike Inc (NYSE: NKE) is trending up in extended hours even though its revenue came in shy of Street estimates in the fiscal first quarter.

Why is Nike stock holding up?

The stock is keeping resilient primarily because the footwear giant came in well ahead of expectations on the earnings front.

Nike ended its Q1 with inventories at $8.7 billion or down 10% on a year-over-year basis. On CNBC’s “Worldwide Exchange”, Brian Nagel – a Senior analyst at Oppenheimer said today:

Sentiment has gotten too negative on Nike. I think this brand is still very solid, sales are holding up, and I think you’ll see improving profit over the next several quarters.

The Nike brand jumped 3.0% in the recently concluded quarter mostly on strength in Asia, including China. The namesake brand as well as “Converse” saw significant weakness in North America, though.

Notable figures in Nike’s Q1 earnings release

• Earned $1.45 billion versus the year-ago $1.47 billion
• Per-share earnings inched up 1.0% to 94 cents in Q1
• Revenue jumped 2.0% to $12.94 billion as per the press release
• Consensus was 76 cents a share on $13 billion revenue

Nike reported a 10-bps decline in gross margin to 44.2% in the first quarter. Still, Oppenheimer’s Nagel added:

Shipping costs have come down dramatically and in some cases are below pre-pandemic levels. It’s just a matter of time before the accounting catches up. We’ll see better gross margins over the next several quarters.

Should you buy Nike stock today?

Other notable figures in the earnings report include a 6.0% annualised growth in Nike Direct and a 2.0% increase in Nike brand digital sales.

At $7.0 billion, wholesale revenue was down 1.0% year-over-year on a currency-neutral basis. According to Brian Nagel, though:

Nike is very much on top of innovation game. These brands [On Running, Hoka] are very small and Nike is very large. I’m not too concerned about the market share shift.

He doesn’t see the strong dollar as much of a headwind for the New York listed firm either. Oppenheimer’s buy rating on the Nike stock is coupled with a price target of $150 that suggests about a 65% upside from here.

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