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Nike Earnings: What to Watch

By Demitri Kalogeropoulos - Jun 19, 2021 at 9:59AM

Key Points

  • Sales should spike compared to a year ago.
  • Major risks include rising costs and inventory and supply chain challenges.
  • Nike's broader outlook is bright thanks to a packed pipeline of product launches ahead and strong interest in its athletic niche.

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Investors have some big questions ahead of Thursday's report.

In its last earnings report, Nike (NKE 0.21%) disappointed investors who were looking for evidence of a powerful growth rebound. Instead, sales dropped 10% in the core U.S. market and only edged up by 3% worldwide.

Management said that the early 2021 stumble was due to supply chain challenges, which means there should be much better news in Nike's upcoming report. But will the footwear and apparel giant surprise Wall Street in its announcement on Thursday, June 24? Let's look at the key expectations heading into that report.

A person jogging at sunrise.

Image source: Getty Images.

Sales will jump

All the ingredients are in place for Nike to announce a head-turning growth figure on Thursday. Sales a year ago were depressed by COVID-19 shutdowns, for one. Nike also said a significant portion of its sales last quarter were pushed into the next quarter because of shipping delays.

Lastly, industry peers have painted an encouraging picture of the market as we approach the summer selling season. Foot Locker credited Nike brands for helping deliver an 80% sales spike in the first quarter. lululemon athletica (LULU 2.69%) doubled its revenue year over year as consumers enthusiastically shelled out for athleisure wear.

All of this good news has investors expecting Nike to report a nearly 80% sales increase to $11.1 billion. Hitting that target would put the company back into record territory following the pandemic year. Sales in the same fiscal quarter of 2019 were $10.2 billion.

Meeting profit challenges

There's a similarly positive expectation around earnings, with profits likely to land at $0.50 per share compared to a $0.51-per-share loss a year ago. But the bigger questions revolve around Nike's profitability.

NKE Gross Profit Margin Chart

NKE gross profit margin data by YCharts.

Supply chain challenges last quarter raise the risk of increasing markdowns. And prices are rising for key sneaker inputs and for transportation. If Nike struggled on these scores, it would show up in weak gross profit margin. If management executed well, on the other hand, and if the flood of new product introductions resonated with consumers, then Nike likely will announce robust profit margins to close out its fiscal 2021.

The new outlook

Investors will get their first look at management's detailed 2022 outlook on Thursday, and it might be a blockbuster. Nike could be looking at surging demand in the U.S. market even as its China division soars. Both geographies will be supported by rising prices and a tilt toward digital sales and premium products. These trends suggest gross profit margin could head toward 50% of sales in 2022 under the most likely selling scenario. Lululemon's profitability jumped by 6 percentage points last quarter to 57% of sales, after all.

Risks to this bullish outlook include slowing economic growth, supply chain bottlenecks, and new COVID restrictions in places like Europe. CEO John Donahoe and his team won't have a clear answer about all of these potential challenges to the late 2021 operating results. But the company's performance through May, plus the pipeline for footwear releases heading into the holiday season, might convince them to issue an aggressive forecast for 2022 that has investors feeling much better about this attractive growth stock.

Demitri Kalogeropoulos owns shares of Nike. The Motley Fool owns shares of and recommends Lululemon Athletica and Nike. The Motley Fool has a disclosure policy.

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Stocks Mentioned

NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$116.32 (0.21%) $0.25
Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
LULU
$330.34 (2.69%) $8.65
Foot Locker, Inc. Stock Quote
Foot Locker, Inc.
FL
$31.43 (-0.29%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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