ii view: Nike shares rocket after rebound from pandemic

Wholesale demand revived and online sales soaring at this global sporting giant. Buy, sell or hold?

Fourth-quarter results to 31 May

• Revenue up 96% to $12.34 billion
• Profit or net income of $1.51 billion, up from a loss of $790 million
• Earnings per share of $0.93, up from a loss of $0.51 per share
• Quarterly dividend up 12% to $0.275 per share

Chief executive John Donahoe said:

“Nike’s strong results this quarter and full fiscal year demonstrate Nike’s unique competitive advantage and deep connection with consumers all over the world. Full year 2021 was a pivotal year for Nike as we brought our Consumer Direct Acceleration strategy to life across the marketplace. Fuelled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for Nike's long-term growth.” 

ii round-up:

Sports clothing and footwear maker Nike (NYSE:NKE) has reported a strong return to profit from a prior year quarterly loss, as its wholesale business again supplied shop customers such as JD Sports Fashion (LSE:JD.) following pandemic related closures. 

Fourth-quarter profit of $1.51 billion contrasted with the prior year’s loss of $790 million, with overall sales of $12.34 billion beating analyst forecasts nearer to $11 billion. Forecast sales of more than $50 billion for the year ahead also surpassed expectations, buoyed by hopes for its women’s category and its Jordon brand. 

Nike shares rose by more than 10% in after-hours US trading, having already more than doubled since pandemic lows in March 2020. Shares for UK headquartered retail customer JD Sports Fashion have risen by over 160% during that time and shares in luxury goods retailer Burberry (LSE:BRBY) have also just about doubled.

Nike’s strategic push to enhance its own consumer direct sales continued to stride ahead. Digital sales rose by 41% compared with the prior year and were up 147% compared with the same period in 2019.

In North America, its biggest market, sales more than doubled to $5.3 billion, while sales for its EMEA region including Europe also more than doubled to $2.98 billion. Sales across Greater China rose by a more conservative 17% to just under $2 billion. 

Sales for its separated-out Converse brand jumped by 95% year-over-year to just under $600 million. A fourth-quarter dividend payment of $0.275 per share makes for an annual total of $1.10 per share, up from $0.98 per share the year before.   

ii view:

Nike is a designer, distributor and retailer of athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. It is headquartered near Beaverton, Oregon in the USA. Its brands include Nike itself, Jordan and Converse, a wholly-owned subsidiary brand. 

North America remains its biggest market, accounting for 40% of sales, followed by Europe and the Middle East at around 27%, China at close to 20% and Asia Pacific the balance. Both dividends and share buybacks currently contribute to shareholder returns. Managements points to its record of 19 consecutive years of increasing dividend pay outs.

For investors, the possibility of further disruption caused by the pandemic cannot be completely dismissed. An estimated forward price/earnings ratio above the 10-year average also suggests the shares are not obviously cheap. And despite a progressive dividend policy, a yield of under 1% is not enticing.

That said, online or direct sales are growing impressively and now account for over a third of total sales. As such, its relationship with consumers directly is building, with some costs being removed. The world’s love affair with sport and its pool of superstars also shows no sign of fading. In all, and with analysts currently estimating a fair price per share of close to $161, there looks to be room for further upside for the long-term.

Positives: 

• Growing online sales
• A progressive dividend policy

Negatives:

• Uncertain pandemic outlook
• Environmental concern and use of hazardous chemicals

The average rating of stock market analysts:

Strong buy