Nike (NKE) as a component of Dow Jones will be highly in focus when it reports its Q1 '23 financial year earnings NIKE after the closing bell on Thursday, September 29, '22. The sell-side consensus estimate is expecting EPS of $0.94 on $12.3 billion in revenue for expected annual decline of 19% and ~1% respectively.

Nike shares are down 44% from its early November '21 highs of $179 per share. Over the last five years, Nike shares have been demonstrating a premium P/E ratio of around 46X. They are presently trading at 26X TTY.

Nike’s biggest concern is its overseas sales where Covid lockdowns in China have weighed on results. Sales were down 19% in the all-important growth market last quarter with more than half of Nike’s business in the region impacted. Although a small part of business, Nike’s exit from Russia could be another downsizing concern.

Back in the North American market, Nike continues to be exposed to supply chain disruptions that have complicated its product shipments to wholesalers and retailers. On top of that, its global shipping costs keep surging even though transit times are slower.

Unfavorable foreign exchange rates are also a major headwind. The strength of the U.S. dollar has translated to weaker sales. It will continue to do so with the dollar going up alongside surging Treasury yields.

Nevertheless, last quarter, Nike Direct sales jumped 11% on a currency-neutral basis. Results were particularly strong outside of North America, including the EMEA region where Nike Direct sales soared 43%. This is a good sign because it shows the Nike brand is gaining momentum in international growth markets, another important part of the growth plan.

Product shortages and escalated expenses are a disastrous combination when you’re a global footwear & apparel business – and the main reason Nike will limp into Q1 earnings with its stock trading nearly 50% below last year’s record peak.

The key takeaway here is that Nike will be facing a growing demand problem as more Covid-hurt world population opt to buy cheaper local brands. Sales growth is expected to have been flat again in Q1 but, considering the inventory issues, this could further aggravate down the road.