Athletic footwear and apparel maker NIKE (NYSE: NKE)
stock has been punished recently on its earnings report and potential China boycotts of its products. The globally popular and at times outspoken brand has found itself caught in a politically and socially charged riptide that could have a material impact on its topline as 20% of its sales come from China. Athleisure and comfort wear products sales were bolstered during the pandemic
driven by work
, and engage
from home trends. NIKE also benefits from the reopening play as the vaccine rollout
enables the lifting of capacity restraints. The reopening of brick and mortar stores, sporting events and gyms are positive tailwinds. The recent sell-off is bringing down multiples which is a boon for prudent investors looking for attractive value and growth plays at opportunistic pullback levels.
Fiscal Q3 2021 Earnings Release
On March 18, 2021, NIKE released its fiscal third-quarter 2020 results for the quarter ended February 2021. The Company reported diluted earnings-per-share (EPS) profit of $0.90, beating consensus analyst estimates by $0.15. Revenues grew 3% year-over-year (YOY) to $10.4 billion, missing analyst estimates by (-$609 million). NIKE Direct sales rose 20% YoY to $4 billion. Gross margins rose 130 basis points to 45.6%. NIKE Brand digital sales rose 59% YoY. North America revenues fell (-10%) YoY due to supply chain problems, “including global container shortages and U.S. port congestion impacting the flow of inventory and timing of wholesale shipments.” Shipping delays impacted third quarter inventory flows by up to three weeks. EMEA physical retail store sales declined due to 45% of Nike-owned retail stores experiencing mandatory COVID-19 closures in the last two months of the quarter. This was partially offset by the 60% YoY growth in digital sales. As of the earnings report, approximately 65% of EMEA stores are open. Greater China revenues rose 42% YoY with 44% YoY growth in digital sales. Cash and cash equivalents at quarter’s end was $12.5 billion, up $9.3 billion YoY due to corporate bond offering and positive free cash flow. The Company expects to resume it stock buyback program in fiscal Q4 2021.
Conference Call Takeaways
NIKE CEO, John Donahoe, set the tone, “We remain consumers’ number one favorite brand in all 12 of our key cities in both men’s and women’s businesses. We’re also seeing particularly strong connects in Greater China where our strong portfolio of brands, including Jordan and Converse, is helping to extend our leadership position… Our roster of athletes is the greatest in the world.” The Company doubled the number of countries accessing its SNKRS Live streaming product drop content. The average viewing duration doubled to 15 minutes. The Company continues to bolster its digital transformation through its SNKRS App, Activity Apps and platforms including TikTok to “deliver an authentic NIKE experience in digital.” The Jordan brand saw broad-based growth with the women’s business up nearly triple digits. The launch of the Air Jordan 11 Jubilee was once of the Company’s most successful in history clocking in over $175 million in sales.
Bolstering the Digital Opportunity
The Company acquired data integration platform Datalogue in Q3 to further optimize its data analytics into more actionable insights at greater speeds. The Company plans to bolster its digital opportunity as North American delivered $1 billion in revenues for the first time. The digital business is growing 54% YoY and NIKE has long-term goals of digital accounting for 50% of revenues in the future. The SNKRS App lead the 60% increase in monthly engaged users and 4X the engagement in monthly active users (MAUs) YoY. CEO Donahoe stated, “This heightened engagement is translating into buying. We’re seeing continued member growth outpace total digital growth as buying members increased 80% versus prior year.” He noted that this extends beyond just digital as the NIKE retail stores experience member demand penetration and member-specific promotions and enhanced account-linking capabilities. This drives the goal of “better servicing and driving repeat engagement with active, high-value members”. The largest top line growth rate coming from Greater China is threatened if calls for a boycott actually materialize. While the reaction may have initially been overdone, it has turned price trajectories lower, which can present opportunistic pullback entries for prudent investors.
NKE Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for NKE stock. The monthly rifle chart uptrend peaked at the $147.94 Fibonacci (fib) level as shares fell under the monthly 5-period moving average (MA) support at $135.51. This caused the monthly stochastic to cross down as it stalls near the 90-band. The daily market structure low (MSL) buy triggers above $133.19 versus the weekly market structure high (MSH) sell trigger under $140.37. The weekly rifle chart has a downtrend with a falling 5-period MA resistance at $135.81 powered by the bearish stochastic mini inverse pup. Incidentally, NKE shares collapsed through the weekly lower Bollinger Band (BB) target at $126.15 before a strong dead cat bounce that may retest the weekly 5-period MA before resuming its downtrend. Prudent investors can watch for opportunistic pullback levels at the $129.38 fib, $127.64 fib, $125.51 fib, $122.52 fib, $120.58 fib, and the $117.55 fib. The upside trajectories range from the $144.95 fib upwards towards the $165.82 fib price level.
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