2021 was a year of ups and downs for Nike. But some analysts are maintaining confidence for the Swoosh in 2022.
In a recent 2022 outlook from Guggenheim, analyst Robert Drbul named Nike as the “Best Idea” across coverage, citing the company’s strong market share, product innovation, and recent foray into the metaverse.
“We note Nike’s engagement in the metaverse and will be watching closely as Nike’s digital strategy continues to evolve,” Drbul wrote.
Last month, Nike acquired RTFKT, a digital creator of virtual sneakers, collectibles and accessories, in a bid to expand its influence in the metaverse. In the wake of the deal, Stifel analysts said the acquisition had “strategic value” to help “expedite the expansion into Nike’s potential NFT offerings.”
The move built upon Nike’s goal to expand its influence in the metaverse via virtual sneakers. Earlier this year, Nike filed seven trademark applications related to its goal to create and sell virtual sneakers and apparel. It also partnered with the Roblox video game platform to launch “Nikeland,” a digital world for Nike fans to play games, connect, and dress their avatars in virtual apparel via a digital showroom, which includes products like the Air Force 1 and Nike Blazer.
Nike is also looking to achieve 50% digital penetration across its business, which it is accomplishing via a concerted push to its DTC channels, such as its website and app. In his note, Drbul said he is confident that Nike will be able to meet this goal.
The positive expectations come after a rough 2021 for Nike, which had two months of no unit production in Vietnam when two of its footwear suppliers there stopped manufacturing in July. The halt in production continues to impact inventory and sales in regions like Greater China.
Still, Nike beat analysts’ expectations when it reported quarterly results last month, which included revenues of $11.4 billion for Q2, up 1% year over year and flat on a currency-neutral basis. Net income was $1.3 billion, up 7% year over year.
“We believe the long-term financial framework the company laid out last June remains quite attainable,” Drbul wrote. “We are confident the Nike team can leverage its COVID experience to mitigate the negative logistics impacts by employing the seasonless approach to serve the consumer demand.”
The Guggenheim analyst also said that there are opportunities for Nike to create products that resonate with consumers in China, a region that has been difficult for American brands to dominate as of late. In Q2, Nike reported that sales in China were down by 24%. The drop was partly influenced by boycotts against Nike in the region after the brand released statements against alleged forced labor in the Xinjiang region.
As a result, home-grown shoe brands such as Anta Sports and Li-Ning have grabbed market share.
“While concerns on geopolitical issues linger for Nike in China, we are confident in its brand strength and its innovative leadership in the region,” Drbul wrote.