As the coronavirus pandemic persists, Nike is only getting stronger — and analysts believe that momentum is here to stay.
The sportswear giant, which reported better-than-expected earnings after Friday’s market close, has logged three consecutive quarters of roughly 80% digital growth. During Q2 2021, its online sales surged 84%, or 80% on a currency-neutral basis. It recorded triple-digit improvements in North America and solid double-digit increases in the Europe-Middle East-Africa region, Greater China, as well as Asia Pacific and Latin America countries.
“As we’ve said, this growth won’t always be so uniform, but we are growing the pie and taking share from competition,” CEO John Donahoe said in a conference call. “This is the sharp point of our strategy. The consumer shift to digital is permanent, and our digital penetration will only increase in years to come.”
Speaking with FN, Jane Hali & Associates retail research analyst Jessica Ramirez attested to Nike’s performance in the digital space even before the COVID-19 health crisis took hold and subsequently disrupted business across the globe.
Watch on FN
“Pre-pandemic, they were already doing very well with digital, so during the pandemic, they were able to easily react,” she said. “Nike has proven that once they have something in place, they don’t just sit on it; they continue to evolve it.”
Ramirez explained that the brand’s strength goes beyond its digital prowess: “When we speak about digital, another area where Nike has the advantage — beyond their website, mobile or social media sales — is the data collected on the back end,” she said. “Nike has been very good about knowing how to use that data properly in order to go forward with their business and build their products. They’re quite masters at understanding the consumer, from how they shop to what they’re looking for.”
For the three months ended Nov. 30, the athletic apparel and footwear behemoth reported earnings of 78 cents per share, compared with the prior year’s EPS of 70 cents. Revenues also shot up 9% to $11.2 billion. The financial results trounced Wall Street’s bets of 62 cents in earnings per share and revenues of $10.56 billion.
According to the Beaverton, Ore.-based company, sales for the Nike brand rose 8% to $10.7 billion — driven by double-digit advancement in Nike Direct plus growth in the sportswear category and Jordan Brand, while slightly impacted by a mid-single-digit drop in its wholesale business as it continues to fortify its direct-to-consumer channels.
“Nike is the global athletic market leader with diversification across product categories, geographies and distribution,” JPMorgan analyst Matthew Boss wrote in a distribution note, where he raised the label’s price target to $170 from $146. “We see Nike’s brand momentum across geographies as sustainable and providing insulation to macro volatility and supporting at minimum sustainable, multi-year, high-single-digit top-line growth.”
UBS also gave the brand a buy rating and assigned it a price target of $183. According to analysts with the firm, Nike will continue to gain market share; the company, they said, remains well ahead of competitors in terms of product innovation, marketing tactics and supply chain capabilities.
“The key is Nike’s digital transformation is just getting started, and this is a point the market likely doesn’t fully appreciate,” read UBS’ note. “We think robust earnings growth plus upward revisions to sell-side consensus EPS estimates will keep Nike’s price-earnings ratio high and drive the stock higher.” (In the year to date, NKE shares have jumped more than 40%.)
As digital booms, the company also continues to invest in its brick-and-mortar fleet. During the call, top management shared that the brand is pouring more resources into buy online, pick-up in store and ship-from-store services, as well as adding more pick-up points to get closer to consumers, lower costs and improve sustainability.
Shoppers have continued to demand such capabilities as the number of COVID-19 cases rise in certain parts of the United States and Europe, prompting renewed lockdowns that have led to another round of temporary store closures. Today, more than 90% of Nike’s owned outposts are back in business, with some operating on reduced hours. Although it continues to experience year-over-year declines in physical retail traffic, the company said it has seen higher conversion rates at its stores.
“[Consumers] don’t differentiate digital and physical in the same way they used to,” Donahoe added. “They may want to buy online, pick-up in store. They might want to buy online, have it shipped from store. They may want to go try it on and then have it shipped home… It’s a lot of little things that make a difference to be a great digital company, and we’re a clear leader here.”
