Nike Is Getting Stronger, but How?

Nike (NYSE: NKE) is a stronger company today than it was 18 months ago, according to a statement made by president and CEO John Donahoe, following the release of the company’s Q2 2022 results. I’m bullish on Nike’s shares.

“NIKE’s strong results this quarter provide further proof that our strategy is working, as we execute through a dynamic environment,” said Donahoe. “We are now in a much stronger competitive position today than we were 18 months ago. And I want to thank our roughly 75,000 global teammates for all their work to provide consumers with the compelling new product, innovation and experiences that only NIKE can deliver.”

Apparently, Donahoe refers to the 18-month period that has elapsed since the company shifted its sales strategy from an indirect sales model, which relies on third-party sellers, to a direct model, which relies on its stores and online sales.

Beating Market Estimates

Following a long tradition, Nike had a solid Q2 2022, beating market estimates. Revenues came at $11.4 billion, up 1% from last year, while diluted earnings per share for the quarter were $0.83, up 6%.

NIKE Direct sales reached $4.7 billion, up 9%, while NIKE Brand Digital sales increased 12%, led by 40% growth in North America, especially on Black Friday.

In addition, Nike’s shift from to a direct sales model helped the company boost its gross margin by 280 basis points to 45.9%, meaning that the new strategy made Nike more profitable by cutting the middlemen.

Nike’s results would have been even better if not for global supply chain bottlenecks, which hurt its Asian-Pacific sales.

Multiple Advantages

Nike’s ability to deliver strong performance almost quarter after quarter for more than three decades isn’t an accident. It results from the sum of all advantages, scale and scope, customization, and innovation, stemming from one source: customer connections.

“Our second-quarter results reflect our deep consumer connections, the continued strength of our brands and strong marketplace demand,” said Matt Friend, Nike EVP and CFO. “As we navigate through short-term supply challenges, we are focused on executing our Consumer Direct Acceleration strategy to fuel our long-term financial outlook.”

Wall Street has noticed Nike’s multiple advantages, which keep competition off its market turf. Over the last 10 years, Nike has outperformed the overall market, delivering an average annual total return of 22.5%, compared to 16.2% for the S&P 500.

TipRanks assigns Nike a Smart Score of “Perfect 10,” citing many positives, like solid technicals and fundamentals, and positive sentiment among investors, boggers, and hedge fund managers.

Wall Street’s Take

Nike is popular with the analyst community. In the last three months, 24 analysts have followed its shares, with a Strong Buy rating.

The average Nike price target of $185.74 represents 11.5% upside potential. Price targets range from a low of $160 per share to a high of $202 per share.

Bottom Line

Over the decades, few companies are strong enough to shake off several challenges to deliver superior returns to their stockholders. Nike is one of them.

It has been growing stronger, winning both on Wall Street and Main Street by staying connected to the customer, the ultimate boss of every capitalist enterprise.

Disclosure: At the time of publication, Panos Mourdoukoutas had a position in Nike.