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Nike (NKE) Cheers Investors With Dividend Hike Amid Cost Woes

Nike, Inc. NKE announced that its board of directors approved a quarterly cash dividend hike of 11% to 34 cents per share. The quarterly dividend will be paid out on Dec 28, 2022, to shareholders of record at the close of business on Dec 5, 2022. This brings the new annualized dividend to $1.22 per share, resulting in a dividend yield of 1.1%. Also, this marked the 21st consecutive year of increasing dividend payouts.

The dividend increase is likely to come as a relief for investors since the company raised concerns about increased freight and logistic costs despite sales growth. This, along with higher markdowns and currency headwinds, remain concerning.

In first-quarter fiscal 2023, NIKE’s gross margin contracted 220 basis points (bps) to 44.3%. SG&A expenses rose 10% year over year in the fiscal first quarter due to higher operating overhead and demand-creating expenses. Consequently, NIKE’s earnings per share of 93 cents in first-quarter fiscal 2023 decreased 19.8% from $1.16 reported in the year-ago quarter.

Owing to these factors, the company provided a bleak view for the second quarter and fiscal 2023, driven by expectations of higher markdowns during the holiday season and slowed demand for NIKE's brands, including Jordan and Converse, stemming from reduced discretionary spending.

For fiscal 2023, management anticipates low-double-digit revenue growth on a currency-neutral basis and revenue growth of low to mid-single digits on a reported basis. We expect currency-neutral revenue growth of 13% for fiscal 2023. For second-quarter fiscal 2023, revenues are expected to grow in the low-double digits.

This Zacks Rank #4 (Sell) company envisions fiscal 2023 gross margin contraction of 200-250 bps, including 150 bps of adverse impacts of significant markdowns and higher off-price mix to liquidate elevated inventory, along with more than 100 bps headwinds related to elevated freight and logistic costs, and unfavorable currency impact of 70 bps. For second-quarter fiscal 2023, the gross margin is likely to decline 350-400 bps year over year.

For fiscal 2023, SG&A expenses are predicted to rise in the high-single digits due to increased investment in new transformational capabilities, partly offset by reduced expenses and limited headcount growth across the business. We expect demand-creating expenses to increase 10.1% year over year in fiscal 2023.

Also, the company has been witnessing currency headwinds due to the strengthening of the U.S. dollar. For fiscal 2023, the company expects foreign currency to hurt reported revenue growth by 800 bps. In second-quarter fiscal 2023, the company expects adverse currency rates to hurt revenues by 900 bps.

However, Nike remains well-poised on the back of brand strength, robust consumer demand and an innovative product pipeline. Its Consumer Direct Acceleration strategy, along with robust performance in its digital and DTC businesses, bodes well.

NIKE has been benefiting from its efficient digital ecosystem, which comprises its online site as well as commercial and activity apps. In the fiscal first quarter, NIKE Brand Digital revenues improved 16% on a reported basis and 23% on a currency-neutral basis on double-digit growth across EMEA, North America and APLA. Also, revenues grew 4% year over year and 10% on a currency-neutral basis.

Coming to the latest news, the company has a five-year annualized dividend growth rate of 10.8%, reflecting dividend increases for five consecutive years. It boasts a current dividend payout ratio of 34.6%. NKE’s return on equity of 14.8% compares favorably with the industry’s 14.2%, underscoring management's efficiency in rewarding shareholders.

Nike’s ability to reward shareholders with dividends and buybacks is backed by a strong cash flow and revenue generation capacity. The company’s annualized cash flow growth rate has been 6.8% over the past 3-5 years versus the industry average of 9.4%.

Dividend payouts are the biggest enticements for investors and Nike is committed to boosting shareholders’ wealth. In fiscal 2022, the company paid out $5.8 billion in dividends to shareholders. In first-quarter fiscal 2023, NKE returned $1.5 billion to shareholders, including $1 billion in share repurchases and $480 million in dividends.

All said, Nike’s impressive fundamentals, strong footing in the industry and solid portfolio make it a promising stock. NKE draws further investor attention through its regular dividend payouts and commitment to enhancing shareholder returns.

 

Zacks Investment Research
Zacks Investment Research


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We note that shares of the company have lost 9.4% in the past three months but came ahead of the industry’s decline of 11.2%.

Stocks to Consider

Some better-ranked companies from the Consumer Discretionary sector are lululemon athletica LULU, Boyd Gaming BYD and Crocs CROX.

lululemon presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 10.4%, on average. LULU has an expected long-term earnings growth rate of 20%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for lululemon’s current financial-year sales and earnings suggests growth of 26.7% and 26.8%, respectively, from the year-ago period’s reported numbers.

Boyd Gaming currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 11.2%, on average. BYD has a long-term earnings growth rate of 12.8%.

The Zacks Consensus Estimate for BYD’s current financial year sales and EPS indicates growth of 4.4% and 11.7%, respectively, from the year-ago period’s reported levels.

Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. The company has a trailing four-quarter earnings surprise of 18.2%, on average.

The Zacks Consensus Estimate for CROX’s current financial-year sales and earnings suggests growth of 51.5% and 23.7%, respectively, from the year-ago period’s reported numbers.


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NIKE, Inc. (NKE) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
Boyd Gaming Corporation (BYD) : Free Stock Analysis Report
 
Crocs, Inc. (CROX) : Free Stock Analysis Report
 
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