Nike Earnings Preview: Surging Online Sales, China Rebound Offset COVID Impact
Investing.com | Dec 17, 2020 08:03
* Reports Q2 2021 results on Friday, Dec. 18, after the close
* Revenue expectation: $10.55 billion
* EPS expectation: $0.62
When the world’s largest sportswear company, Nike (NYSE:NKE), reports its latest earnings tomorrow, investors will be keen to see a rebound in its sales after the unprecedented challenges presented by the global health crisis.
What’s helping the maker of Air Jordan and Air Force 1 sneakers is its digital strategy which is offsetting much of its lost retail sales. While overall sales fell slightly in the previous earnings report in September, Nike’s digital sales soared 82% during the quarter that ended on Aug. 31.
“These are times when the strong can get stronger,” Chief Executive John Donahoe said on a conference call with analysts back then. During the pandemic, he said the company gained market share across the Nike and Jordan brands and returned to growth in international markets, including China and Europe.
The latest turnaround is coming from the spring quarter, when the sneaker giant’s revenue plunged 38% amid store closures. Though the COVID-19 pandemic continues to rage, analysts believe the health crisis has positioned the company to further extend its lead in sportswear.
This positive momentum has greatly helped Nike shares, which rose more than 37% this year, soaring to a record high this week. They closed Wednesday at $138.34.
As well, Nike boosted its quarterly dividend by 12% last month, at a time when other global brands either slashed or suspended their payouts to preserve cash.
h2 Digital Strength/h2The biggest surprise in this remarkable comeback is that Nike is emerging stronger from the pandemic due to its superior e-commerce operations and successful execution. That means the disruptions caused by the store closures and lockdowns didn’t hurt its brand appeal and customers are quickly returning.
KeyBanc, while assigning a $174 price target to the stock, said Nike has more room to the upside, fuelled by its digital sales.
Said analyst Matthew DeGulis in a research note:
“NKE is near all-time highs, but we think the company’s scale and investments in 2x speed will ensure more full-priced sales, and its digital shift will enable long-term revenue and margin growth.”
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Nike was among the earliest companies to get caught up in the coronavirus-triggered slowdown. The company was forced to close its stores in China—its second-largest market after the U.S.—when the COVID-19 pandemic hit that nation early this year, endangering sales from the company’s largest Asian market.
Tomorrow’s numbers could also show that a strong economic rebound in China is also helping Nike. Sales in China rose 6% during Q1 as the country succeeded in containing the virus and reviving its economic activity.
Many analysts believe Nike’s cost cuts and digital transformation will continue to revive sales and bring back full growth potential in fiscal 2021. Morgan Stanley reaffirmed its “overweight” rating on Nike, highlighting Nike’s commitment to accelerate its direct sales, robust athletic footwear growth and realigning its operations.
Bottom Line
Nike is one of those companies whose massive investment in technology is paying off during the pandemic and transforming its business into a leaner and more profitable operation. Its earnings report on Friday should prove that point.
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