Nike Report Overview for 3 neighborhood 2022 of the year

NIKEKE128,80 $

Nike (NYSE: NKE) American sportswear manufacturer, shoes and accessories.

In mid-March, the company submitted a report for the third quarter of 2022, which was better than analysts' expectations, what caused the stock to rise 2,5%. Basic moments:

• revenue increased by 5%, up to $10.871 billion, vs market consensus of $10.62 billion;
• net earnings per share decreased by 4% with 0,92 to 0,88 $, and the adjusted figure fell by 3% to 0,87 $ when forecasting in 0,72 $;
• return on invested capital remained virtually unchanged and amounted to 49,1% against 48,8% In the past year;
• net debt in the third quarter remained in the negative zone and amounted to -4 billion dollars.

Nike, like other foreign companies, suspended online sales in Russia and closed official stores. Nevertheless, the company decided not to completely leave the Russian Federation., and switch to a model of interaction with customers through partner stores.

Sales structure

In the report, Nike conditionally divides its revenue into two components.: sales by geography and sales of finished products.

Sales geography. The company operates in almost all countries and identifies four major geographic regions: North America, China, Asia and Latin America and EMEA (Europe, Africa and Middle East). The main market - North America - brings the company more 35% income.

In the third quarter, the company showed excellent results in Asia and Latin America - revenues increased immediately by 11%, and the EMEA countries were the second in terms of growth, where sales increased by 7%. The main reason is the high demand for products.

The outright disappointment in the third quarter was the financial results in China - year-on-year, Nike's revenue decreased by 5% amid weak sales of sportswear and footwear, which have dropped by 4% And 11% respectively.

Geographic structure of sales:

1. North America - 36%.
2. EMEA — 25%.
3. China - 20%.
4. Asia and Latin America - 13%.
5. Other revenue — 6%.

Sales of finished products. The section consists of four product groups:

1. Sport shoes - 61%.
2. Clothing - 30%.
3. Accessories - 3%.
4. Other revenue — 6%.

Moving on to Nike's Q3 2022 results, it is worth noting, that the company recorded sales growth in all product groups: income from the sale of sports shoes increased by only 2% amid weak demand in China and EMEA, from clothes to 9%, from accessories to 32%.

Combined company sales structure, billion dollars

Sales structure of the company in North America, billion dollars

North America	3к2021	3к2022	The change
Sport shoes	2,382	2,532	6%
clothing	1,087	1,207	11%
Accessories	0,095	0,143	51%

Sales structure of the company in EMEA, billion dollars

EMEA	3к2021	3к2022	The change
Sport shoes	1,606	1,569	−2%
clothing	0,898	1,083	21%
Accessories	0,105	0,127	21%

Sales structure of the company in China, billion dollars

China	3к2021	3к2022	The change
Sport shoes	1,614	1,554	−4%
clothing	0,616	0,548	−11%
Accessories	0,049	0,058	18%

Sales structure of the company in Asia and Latin America, billion dollars

Asia and Latin America	3к2021	3к2022	The change
Sport shoes	0,903	1,005	11%
clothing	0,365	0,394	8%
Accessories	0,047	0,062	32%
Other revenue	0,584	0,548	−6%
total revenues	10,357	10,871	5%

Profit

Nike's net profit in the third quarter decreased by 4% from 1.449 to 1.396 billion dollars. The main reason is the outstripping growth of operating expenses, which year on year increased by 10% against the background of large investments in digital sales, as well as in connection with the increase in wages of employees.

Nike has accumulated $13.5 billion in cash and cash equivalents in its accounts, which is about $0.939 billion more, than last year. A good cash cushion allows you to make maximum payments to shareholders. In the third quarter, the company distributed $ 1.7 billion through buyback and dividend payments, which corresponds 120% net profit for the reporting period.

Key financial results of the company, billion dollars

	3к2021	3к2022	The change
Revenue	10,357	10,871	5%
Operating expenses	3,083	3,397	10%
Profit before tax	1,636	1,670	2%
Net profit	1,449	1,396	−4%
ROIC	48,8%	49,1%	30‱
net debt	−3,116	−4,049	−30%

Management expectations and comparison with competitors

Management did not provide an official forecast for the next quarter, but some expectations were still disclosed during a press conference on the results of the third quarter. Main theses:

1. Leadership expects, that revenue for the entire year will increase by no more than 10%, or $49 billion. Consequently, Nike's fourth-quarter sales will be in the region of $13-14 billion.
2. The company predicts, that sales in North America will decline in the fourth quarter amid a strong base last year, that is, there will be less than $5.4 billion, and in China, vice versa, will increase to $2.2 billion.
3. Gross profit up 150‱ to $5.74 billion on strong consumer demand.
4. Increase in Nike prices partially offset by rising operating costs.

Comparison with competitors

	EV / EBITDA	P / E	net debt / EBITDA
Nike	26,39	34,67	−0,51
Adidas	13,14	19,66	−0,43
Columbia Sportswear Company	9,17	16,81	−1,35
Ralph Lauren Corporation	7,95	16,59	−0,66
Levi Strauss & Co	9,90	14,93	0,25
Under Armour	10,72	21,46	−1,61

What's the bottom line?

Nike showed good financial results in the third quarter of 2022, which beat analysts' expectations on revenue and earnings per share. Since the beginning of the year, the company's shares have been at their peak and have corrected from highs by 25% from 170 to 130 $. This is mainly due to the disruption of supply chains., plant closure in Vietnam and weak sales in China.

Ideally, shares of an American company should be bought at a sub-special valuation., which is equal to the EV multiplier / EBITDA = 20 and below, but for this, investors need to see a decline in quotes at least to 102 $.