Nike Falls After Surprise Loss But Digital Growth Accelerates

Nike (NKE) posted an unexpected loss for the fiscal fourth quarter, but management was upbeat on e-commerce sales trends and digital engagement with customers. Nike stock fell.


Management On Nike Earnings Call

Chief Executive John Donahoe told analysts that the coronavirus pandemic has accelerated the pace of digital adoption, even as physical stores reopen. He noted that Nike Training Club weekly active users were up triple digits in the quarter, including 25 million workouts  with women alone.

Directly engaging with consumers through activity apps is the core of Nike’s strategy as it leads to increased purchasing through consumer apps, he said.

This has helped digital sales in the quarter increase by 75%, representing about 30% of total revenue. Nike had previously set a goal to reach 30% digital sales penetration by 2023. In light of this, Donahoe has set a new goal to make e-commerce sales to account for 50% of overall sales “in the foreseeable future.”

Chief Financial Officer Matt Friend said Nike digital growth accelerated in each month of the quarter, even as stores reopened, and the trend is continuing.

Greater China and South Korea returned to growth in the fourth quarter, while the U.S. is still in the recovery period, he added and expects China will return to full health at the end of June.

While Nike wouldn’t provide specific fiscal 2021 guidance, Friend said full-year revenue will be flat to up vs. 2020, though the first half will be down. He expects the market to remain promotional in the first half of fiscal 2021 as excess inventory is drawn down.

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Nike Earnings

Estimates: Nike earnings per share are seen collapsing 97% to 2 cents, according to Zacks Investment Research. Revenue is seen falling 29% to $7.26 billion.

Results: Net loss of 51 cents a share on revenue of $6.31 billion, down 38%. Product shipments to wholesale customers were down nearly 50% amid store closures. Digital sales jumped 75%, up from 36% in Q3.

North America revenue fell 46% to $2.23 billion. Europe, Middle East & Africa revenue dropped 46% to $1.33 billion. Greater China eased 3% to $1.65 billion. Asia Pacific & Latin America sank 42% to $801 million. Nike said retail traffic continues to improve week-over-week with higher conversion rates as compared to the prior year.

Right now, about 85% of Nike-owned stores are open in North America, 90% are open in Europe, the Middle East and Africa, and 65% open in Asia Pacific/Latin America or operating under reduced hours.

Nike Stock

Shares sank 7.6% to close at 93.67 on the stock market today, undercutting their 50-day and 200-day moving averages. Nike stock remains below its cup-with-handle buy point of 104.79, MarketSmith analysis shows.

Among related stocks, archrival Adidas (ADDYY) lost 4.2% Friday, and Under Armour (UAA) fell 5.2%. Athleisure leader Lululemon Athletica (LULU), which posted weaker-than-expected earnings earlier this month, eased 1.9%.

The relative strength line for Nike stock has mostly been treading water, though it has been turning positive of late. Nike stock has a strong IBD Composite Rating of 90 out of 99. While Nike earnings have been good of late, its recent stock market performance has not managed to keep pace. This means it is not an ideal CAN SLIM stock.


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This article was originally published on Investor’s Business Daily

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