A 1.24% move north during Tuesday’s session was enough to make shares of Nike (NYSE: NKE)
the best performer on the Dow Jones while also giving them their highest-ever closing price. It’s been a solid August so far for the Portland based sports apparel company
and Tuesday’s close bodes well for the rest of the year.
Their shares had been consolidating in a tightening, sideways range since June which is always a healthy sign to see after they’ve put in a big rally. And that’s exactly what they’d done before that. A 40% drop in four weeks would spook the best of us, but that’s what investors of the $100 billion behemoth had to contend with in March. However, shares acted more like a tech or e-commerce company than a footwear brand and by the start of June had recovered to pre-COVID levels.
Strong Digital Sales
This resilience in the face of an adapt-or-die moment for many retail companies speaks volumes to Nike’s business model. Despite taking an initial dip the day after the company’s fiscal Q4 earnings at the end of June, shares haven’t traded lower since. And again, this speaks volumes because their top-line numbers came in well below what analysts were expecting. EPS had been expected to be marginally in the black, showing a profit at around $0.03 but instead came in a deep red shade at the -$0.51 mark. Revenue was also a full 15%, almost $1 billion, lower than the consensus and down 38% year on year.
It looks like Wall Street was happy to consider the report as a temporary blip in what has otherwise been a solid history of outperforming expectations. By the time the report was released, more than 90% of their brick and mortar stores had reopened from the pandemic forced shutdown and even with the headwinds from COVID, the company still managed to grow their presence in key markets like China over the full fiscal year.
Management’s ability to grow its e-commerce revenue was also clear for all to see and digital sales were up 75% year on year. These accounted for close to 30% of total revenue and while this ratio may decrease in the short term as physical sales bounce back, the bulls will be expecting digital sales to remain as an ever-increasing core component of revenue going forward.
New Kinds Of Shoppers
It’s this kind of thinking that has e-commerce companies like Amazon (NASDAQ: AMZN), Shopify (NYSE: SHOP) and Wayfair (NYSE: W) absolutely crushing it right now. The coronavirus has accelerated the consumer shift to online shopping far beyond the previously forecasted rate and these new online shoppers are expected to stick around even as the virus recedes. With Nike having shown it’s able to be an e-commerce only company, albeit briefly, it’s in a far healthier position than the likes of other retail names. The likes of Macy’s (NYSE: M) and Ralph Lauren (NYSE: RL) are still trading near their lows as they’ve been unable to successfully pivot their revenue streams to digital sales.
The increase in their digital presence was a major theme in the earnings report with CEO John Donahoe noting how the “Nike Brand continues to resonate strongly with consumers all over the world as our digital business accelerates in every market”. Matt Friend, CFO, echoed this when he said “as physical retail re-opens, Nike’s strong digital trends continue, a testament to the strength of our brand and the investments we've made to elevate digital consumer experiences”.
Wall Street has clearly bought into this message. Since June’s earnings miss, there have been plenty of sell-side heavyweights like Susquehanna, Needham and Bank of America who have reiterated their bull thesis and urged investors to look at the long term potential and “focus on the unmatched global strength of the Nike brand, digital prowess, best-in-class customer engagement, unrivaled product innovation, and fortress balance sheet.”
In other words, to paraphrase the company’s slogan; “Just Buy It”.
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