Nike stock up 12% on Q2 earnings: should you buy?

Shares of Nike Inc (NYSE: NKE) are up 10% in extended trading after the sports shoes and apparel company reported strong results for its second financial quarter.

Analyst reacts to Nike’s earnings print

On the downside, though, revenue from China – it’s third largest market was down 3.0% on a year-over-year basis. Still, BMO Capital’s Simeon Siegel said on CNBC’s “Closing Bell”:

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I think top and bottom-line beat is key. We needed to see North America moving in the right direction, it did. We needed to see China starting to work out of the slump it’s been in, it’s getting there.

Sales in North America went up 30% in the recent quarter. Nike did not offer guidance but did say that it was on track to meet its operational and financial goals.

Hit to margins wasn’t too alarming either

Markdowns, currency headwinds, and higher freight costs resulted in a 300-bps hit to gross margins in Q2. But the Senior Retail Analyst still dubs it a positive for two reasons: it was well documented, and it was still better than expected.

Nike made it clear that they will discount. Everyone got good holiday deals. As we work towards the back half of the year, that gross margin will get better.

Another area of concern for the Nike stock was the inventory that was still up 43% versus a year ago but Siegel is convinced that will improve moving further as well.

Should you buy Nike stock?

At 33 times forward, Nike is not an inexpensive stock per se. But Simeon Siegel is sticking to his “buy” rating because the Beaverton-headquartered firm continues to see strong demand even though the pandemic pulled a lot of it forward.

The way we see it in consumer companies is, we see pressure on the top-line. Nike is not seeing that. I don’t know if they’re pulling forward others’ demand as well. But you’re seeing strength in North America.

For the year, Nike stock is still down about 30% at writing.

Notable figures in Nike’s Q2 earnings report

• Earned $1.33 billion versus the year-ago $1.34 billion
• Per-share earnings ticked up from 83 cents to 85 cents
• Revenue jumped 17% year-over-year to $11.36 billion
• Consensus was 64 cents a share on $12.58 billion revenue

Nike Direct and Wholesale went up 16% and 19% respectively, as per the earnings press release. Wall Street currently has a consensus “overweight” rating on the Nike stock.