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Nike to Shareholders: COVID-19 Hasn’t Slowed Us Down a Bit

Despite the historically challenging macroeconomic backdrop brought on by the coronavirus pandemic, Nike Inc.’s leadership said the brand “hasn’t slowed down a bit.”

During its annual shareholder meeting today, the Beaverton, Ore.-based company’s executives told investors that Nike’s “financial strength, scale and adaptability” has shielded it from much of the economic fallout stemming from the global health crisis. In fact, CEO John Donahoe said the COVID-19 pandemic helped reinforce that its two major strategies — the Consumer Direct Offense (2017) and the Consumer Direct Acceleration (2020) — are positioning the company to be successful as retail continues to face unprecedented disruption.

“In short, our strategy is working,” Donahoe told investors, adding that the current challenges in the retail landscape are helping to widen the gap between Nike and its competitors. “The Consumer Direct Offense was working coming into the pandemic —[which then] stress tested the strategy and reaffirmed how correct the direction was.”

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In 2017, Nike introduced its Consumer Direct Offense: Its major pillars included focusing on key cities, ramping up its innovation pipeline, editing its product catalog and enhancing its digital efforts with mobile as a primary channel.

The athletic behemoth announced in its fourth-quarter conference call this past June that it had begun the Consumer Direct Acceleration phase of that initial strategy. Phase two would see the brand ramp up investments in e-commerce and technology, as well as simplify its “consumer construct” of men’s, women’s and kids’ businesses. It also intends to open up to 200 new smaller-format, digitally enabled “monobrand” stores across North America and Europe-Middle East-Africa countries.

Another part of the plan has included the brand severing ties with certain retail partners — among them reportedly are Zappos, Belk and Boscov’s — as it moves to sell more product directly to its consumers and work exclusively with the retailers that share certain brand values and positioning.

“We see an opportunity to take what we probably would have already done in the next four or five years and drive it hard so we can make that kind of change happen in two years or even less,” said Donahoe of the company’s need to lean deeper into DTC, digital and innovation.

“Simply put, consumer behavior is shifting fundamentally during this pandemic, and we don’t think it’s going to flip back.”

Nike’s chief added the brand had been seeing “healthy top line growth, gross margin expansion and operating income growth” that is balanced across geographies with particular strength is greater China as well as at Jordan brand.

The company had planned to be 30% digital by 2023 and Donahoe said it’s already hit that milestone with new ambitions to be at 50% digital revenues in the near future.

When Nike reported fourth-quarter earnings results in June, it 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.

At the time, 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 opened back up their stores.

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

Nike is scheduled to report first-quarter earnings on Sept. 22 after the market close.

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