Interactive Investor

ii view: why it's boom time at Nike

23rd September 2020 11:35

Keith Bowman from interactive investor

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A reopening of stores and impressive digital sales have seen this sports gear giant return to profit. 

First-quarter results to 31 August

  • Revenue down 1% to $10.6 billion
  • Profit or net income up 11% to $1.5 billion year-over-year
  • Earnings per share up 10% to $0.95
  • Quarterly dividend up 11% to 24.5 cents per share

Guidance: 

  • Expects full-year revenue to rise between high single digits and low double digits versus last year

Chief executive John Donahoe said:

“Our results this quarter continue to demonstrate Nike’s full competitive advantage, as we strengthen our position in the midst of disruption. In this dynamic environment, no one can match our pace of launching innovative product and our Brand’s deep connection to consumers. These strengths, coupled with our digital acceleration, are unlocking Nike’s long-term market potential.”

ii round-up:

Sports clothing and footwear maker Nike (NYSE:NKE) yesterday reported a strong return to profit from a prior quarter loss as digital sales soared, and its stores reopened following Covid-19 lockdowns. 

First-quarter profit of $1.5 billion rebounded from a fourth-quarter loss of $790 million, as its own stores reopened, other retailers resumed orders and online sales jumped by 82% year-over-year. 

Nike shares rose by more than 10% in after-hours US trading and are up over 80% since pandemic induced lows in late March. Shares for UK sports retailer JD Sports (LSE:JD.) have more than doubled since late March, although are down just over 5% year-to-date. 

Nike earnings of 95 cents per share easily beat analyst forecasts nearer to 50 cents per share, aided by reduced selling and administrative expenses as the marketing budget was eased given a return of sporting events. 

The Oregon headquartered company also raised its full-year sales forecasts after sales in China rose by 8%, including a currency tailwind helping to offset a 1% fall in North America. Sales for its region including Europe improved by 5%. 

Store customer footfall remain down compared to 2019, given reduced consumer presence in cities globally under ongoing pandemic measures encouraging people to work from home.

Footwear sales, its biggest category accounting for just over 65% of overall sales, rose by 5% to $6.77 billion as apparel demand retreated by 7% to $2.87 billion. 

ii view:

Nike is a designer, distributor and retailer of athletic footwear, clothes, equipment and accessories for a wide variety of sports and fitness activities. Its brands include Nike itself, Jordan and Converse, a wholly-owned subsidiary brand. North America is its biggest market accounting for just over 40% of sales, followed by Europe and the Middle East at around 30%, China at just under 20% and Asia Pacific the balance. 

For investors, the ongoing uncertainty of the pandemic and potential for further complete lockdowns needs to be remembered. Also, an estimated forward price/earnings ratio of over 40, and comfortably above the 10-year average of nearer 30, is not obviously cheap. But with online sales growing impressively and now accounting for close to a third of total sales, and the world’s love affair with sport and its pool of superstars showing little sign of fading, Nike remains a stock with plenty to attract new investors and keep existing shareholders happy.

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:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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