Why Nike Investors Shouldn’t Sell Following Last Night’s Earnings Call

The world’s most famous sports brand had a bit of a stutter in Q2, but could this simply be the discount opportunity investors needed?

Sept. 24, 2021

Investors in the world’s most renowned sportswear brand will likely be sweating this morning as they see its stock price continue to drop after hours. 

But is it really time to hit the panic button, or is Nike just suffering a short-term blip?

When it comes to Nike, success is in its DNA

While that sounds very much like some corny marketing line that Nike has used in the past, it really does stand true. But before we get into that, let’s look into why its stock is dropping:

The company is continuing to suffer from supply-chain constraints as its factories in Vietnam and other Southeast Asian countries struggle with COVID-19 restrictions. This has forced Nike to revise its guidance for the rest of the year, now expecting full-year sales to increase at a mid-single-digit pace, compared with a prior outlook of low double-digit growth. To add insult to injury, revenue of $12.25 billion in Q2 just missed expectations. 

Not so hot, right? 

Well, if you’re a long-term investor, there’s no need to panic just yet. After all, those revenue figures were still up 16% year-over-year (YoY), earnings of $1.16 per share topped expectations, and digital sales were up 29% YoY. And, most interestingly, according to management, tightened inventories have resulted in greater profitability on products sold.  

Long-term investors should not dismiss the importance of this as it represents an ongoing strategy aimed at accelerating direct sales of its products to consumers. By eliminating intermediaries, profit margins will grow over the long run for Nike. Supply constraints could be the catalyst to kick this strategy up a gear. 

As long as your conviction in Nike’s longevity remains strong, it’s the long-term plans that should affect your mindset. And from here, the long-term looks exciting.

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