Nike Q1 Earnings Show Importance of E-Commerce and China

Nike’s fiscal first-quarter report saw its stock jump 13% after-hours as digital sales soar 82% following an impressive rebound in China.

Sept. 23, 2020

Last night, Tuesday 22 September, Nike (NYSE: NKE) reported on its fiscal first-quarter performance, and boy, did they impress. Much was made of the importance of this quarter considering how poor its Q4 earnings were. At the end of June, Nike reported an unexpected loss, as its revenue tumbled 38% year over year, hurt by the temporary closure of stores during the pandemic. 

Shares in Nike rose more than 3% on Tuesday prior to earnings as investors became optimistic off the back of reports of strong sales in China. Lo’ and behold, sales in China rose 6%, offsetting somewhat the anticipated 2% decline that occurred in North American sales. But North American sales of $4.23 billion were still ahead of analysts’ predictions for $3.39 billion. The key takeaway from Nike’s report was its 82% rise in digital sales, helped in large part by the 200% increase in sales from its women’s apparel division.

True to form, CEO John Donahoe also offered a fresh outlook for fiscal 2021, predicting sales to be up in the high single digits to low double digits from a year earlier. This fresh outlook comes at a time when many apparel rivals are declining to provide guidance for investors due to pandemic-related uncertainties. 

Shares in Nike have risen as much as 13% after-hours.  

Nike Q1 Earnings Report Highlights 

Company Q3 Performance Analysts’ Expectations Year-Over-Year Increase
Revenue: $10.59 billion Revenue: $9.15 billion -1%
EPS: $0.95 EPS: $0.47 10.5%
Net Income: $1.37 billion Net Income: $685 million n/a

What does this mean for Nike investors? 

In just its second ‘pandemic quarter’, Nike appears to have steadied the ship after a couple of rocky months. The largest sneaker-maker in the U.S. took a gamble by investing so heavily in e-commerce, mobile apps, and retail stores, but it appears to have paid off. 

Likewise, by turning its existing stores into pick-up hubs and steering clear of department store-like business models, it has offset major damages from the pandemic. Its investments are helping fuel its relative strength compared with other retailers that have been hit hard by the pandemic. Dozens, including Brooks Brothers, J.Crew, J.C. Penney, and Neiman Marcus, have filed for bankruptcy protection this year. 

The pandemic has forced Nike to up its already strong digital game, so, much like rivals Lululemon and Adidas, it can weather any further lockdowns and store closures by having an up-to-date e-commerce network.

With shares up roughly 15% year-to-date and a market cap of $145.49 billion as of market close, September 22, this is still one of the world’s most recognizable and valuable brands and should emerge from this pandemic relatively unscathed. 

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