Nike Earnings: Brand Strength Shines Despite North America Weakness; Shares Undervalued

Wide-moat Nike’s profit margins eclipsed our estimates in its (August-ended) fiscal 2024 first quarter despite a tough demand environment in North America and negative currency effects. We believe the firm’s competitive advantages, including its innovative product, robust marketing, and global focus, are allowing it to outperform competitors. Although second-quarter sales growth is likely to be negligible, we do not think Nike will need to resort to heavy discounting as its inventory was down 10% at the end of the first quarter. Nike’s shares edged up by 8% in Sept. 28 postmarket trading, but we still rate them as undervalued in relation to our fair value estimate of $136, which we do not expect to revise materially. Nike’s shares have rarely traded at such a sizable discount to our valuation over the past decade.