Analysts Were Wrong About Nike — but Here’s Why the Brand Is Probably Headed in the Right Direction

Even sportswear giant Nike Inc. isn’t immune to the ripple effects of the coronavirus pandemic.

For the fourth quarter, the Beaverton, Ore.-based company posted an unexpected loss of 51 cents per share, marking only the second time in eight years that it has missed earnings estimates. Revenues dropped 38% to $6.3 billion, which the brand attributed to the widespread closures of owned and partner stores across North America as well as Europe-Middle East-Africa and Asia-Pacific-Latin America countries.

Analysts were forecasting earnings of 9 cents per share and sales of $7.53 billion. As of 5 p.m. ET in after-hours trading, Nike’s stock was down 3.15% to $98.21.

As the COVID-19 health crisis took hold, the athletic brand shut down 90% of its own brick-and-mortar fleet for roughly eight weeks in the quarter. Government-mandated lockdowns also forced its wholesale partners to follow suit, leading to a 50% drop in Nike’s product shipments to clients, resulting in lower sales and higher inventory levels.

The closures of its physical stores led Nike to turn its resources to its digital business — a bright spot in its earnings report — which surged a currency-neutral 79% in the fourth quarter and accounted for about 30% of total revenues. (The company reported strong double-digit increases across all geographies.)

Digital has redefined the industry over the past several years, and Nike has led that change… Even as stores have begun to reopen, we see an extraordinary leap in digital demand and engagement,” president and CEO John Donahoe said in the company’s fourth-quarter conference call. “Over the past few months, we have navigated unprecedented conditions, but our purposeful actions will allow us to emerge from it stronger and better than ever before.”

Prior to the financial release, multiple analysts also touted Nike’s ability to weather the outbreak’s impact on the broader retail sector due to its digital prowess, continued product innovation and hard-hitting marketing messages.

Susquehanna Financial Group LLLP analyst Sam Poser predicted that Nike would see short-lived weakness in its wholesale business as retail partners like Dick’s Sporting Goods, Foot Locker and Shoe Carnival open back up their stores. And while its e-commerce sales helped offset brick-and-mortar closures, Nike’s digital-first push over the past several years has also proven to be “prudent” as the fears over the outbreak continue to keep consumers indoors and drive them online, Poser said in a note yesterday.

“Nike is recovering faster than nearly any company in our coverage universe,” added Poser, who also increased his price target on the brand from $100 to $130. “Nike is emerging from the crisis in a position of strength.”

Today, approximately 90% of Nike’s owned outposts have reopened: Across North America, about 85% of its units are back in business, while 90% of those in the EMEA and 65% in the APLA regions, plus nearly all stores in Greater China have opened back up to the public.

According to the company, store traffic continues to improve week-over-week, with higher conversion rates than the prior year. Plus, in Greater China, where nearly all stores have reopened, revenues advanced 11% for fiscal 2020 — its sixth consecutive year of double-digit currency-neutral growth despite COVID-19 headwinds in the second half of the year.

“We believe this digital acceleration is more indicative of a strategic shift towards a new future marketplace, rather than being a reflection of temporary challenges to the mostly physical marketplace of the past,” EVP and CFO Matt Friend said in the call.

For the full year, Nike’s revenues fell 4% to $37.4 billion, while its net income was $2.5 billion and diluted earnings per share were $1.60. So far this year, its stock has dipped less than 1%.

Looking ahead, the company expects revenues in the second half of the year to be up significantly versus the prior year with full year sales for 2021 “flat to up.”

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