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Here's What Investors Should Know Heading Into Nike's Q1 Earnings

By Parkev Tatevosian, CFA – Sep 20, 2021 at 7:47AM

Key Points

  • Analysts expect Nike to report revenue of $12.46 billion and earnings per share of $1.12.
  • Nike's fiscal 2022 outlook calls for revenue growth of at least 12%.
  • Nike's stock is up 21% in the last three months, but it's still a compelling value for investors.

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The athletic apparel and shoe company is emerging from the pandemic stronger than ever.

Iconic global athletic brand Nike (NKE -1.74%) is set to report fiscal 2022 first-quarter earnings on Thursday, Sept. 23. The company finished fiscal 2021 strong after bouncing back from the adverse effects of the pandemic in 2020.

That isn't to say Nike is not still feeling constrained from the pandemic. However, the customer demand for its products surpasses any difficulties in its supply chain and with its logistical capabilities. Here's what investors should know heading into Nike's first-quarter earnings release. 

Two people jogging outside.

Image source: Getty Images.

Fiscal 2022 targets

Encouraged by its success in 2021, management is targeting optimistic goals for fiscal 2022. Starting with revenue, Nike is guiding investors to look for it to generate over $50 billion for the year. If it achieves the goal, it would be 12% above 2021 revenue of $44.5 billion. Considering Nike has increased revenue at a compounded annual rate of 8.3% over the last decade, it's an optimistic goal to be sure.

Management expects the increase in revenue will deliver efficiencies in scale, and gross profit margin will expand between 120 and 150 basis points in fiscal 2022. That includes the headwinds in the supply chain, rising material costs, and other challenges of doing business during a pandemic. The feat would be impressive following 2021 where Nike's gross profit margin was 44.8%.

Updated long-term outlook 

At the end of its fourth quarter of 2021, Nike gave investors an updated outlook for its key metrics through the year 2025. In that update, Nike said it expected revenue growth in the high-single-digits to low-double-digits in the period. That's higher than the previous outlook of high-single-digits, which matched more closely to the 8.3% revenue growth it achieved in the last decade.

Nike also updated its earnings-per-share growth outlook, raising the target from mid-teens growth to mid-to-high-teens growth. That would be a good deal higher than the 12.5% compounded annual growth in earnings per share over the previous decade.

To say management is confident in Nike's future would be an understatement. Nevertheless, the market was enthused with the outlook, and it partly contributed to the stock rising following the release. The stock has mostly held those gains and is up 21% in the last three months.

What this could mean for investors 

Analysts on Wall Street expect Nike to report revenue of $12.46 billion and earnings per share of $1.12 in Q1, which would be increases of 17.6% and 17.9%, respectively, from the same quarter last year. That would be ahead of the company's fiscal 2022 growth rates, but I don't expect management to raise guidance based on those results.

The company informed investors that the first two quarters would be better than the back half. Based on that, it could take a more substantial increase in revenue and earnings per share to get management to raise targets for the rest of the year. 

Nike is trading at a forward price-to-earnings ratio of 36.8, a reasonable price for a company expecting to grow revenue near double digits and earnings per share close to 20% over the next few years.

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool has a disclosure policy.

Stocks Mentioned

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