Company / Analytics

Analytics, 24 September 2020

What Nike’s Q1 2021 results mean for retailers?

Nike shares soared on Wednesday following an impressive fiscal 2021 first quarter results on. Online sales jumped 82%, and the retailer is seeing a rebound in China where sales rose 6%, compared to North America where sales dropped 2%. Nike expects increased double-digit sales in the next year, from the year earlier. However, some of its competitors are struggling. Read our short analysis of the results and what it means for the apparels sector.

Fiscal report

Nike used the Covid-19 pandemic as an opportunity to accelerate its digital business, and its women’s apparel division grew by nearly 200%. Businesses in key markets like China grew stronger than ever, with the Jordan brand leading the way.

The company also offered a fresh outlook for fiscal 2021, expecting sales to be up high single digits to low double digits from a year earlier. The outlook comes at a time when many of its rivals are avoiding financial guidance.

In the first quarter ended Aug. 31, net income climbed to $1.52 billion, or 95 cents per share, from $1.37 billion, or 86 cents per share, a year earlier. That was far better than the 47 cents per share analysts were expecting.

Revenue slipped 0.6% to $10.59 billion from $10.66 billion a year earlier but topped the $9.15 billion forecast by analysts.

Sales in China rose 6%, while revenue in North America, Nike’s largest market, was down 2%. But North American sales of $4.23 billion were still ahead of analysts’ predictions for $3.39 billion.

Its latest results are a strong reversal for Nike after it experienced a bigger slump last quarter. 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.

*Earnings Report compared to analysts’ expectations *

Though a majority of its stores are open, like many other retailers, Nike is still limiting the number of people who can come into its stores at once, to try to help curb the spread of the virus. Thus when people do visit, they’re coming with the intent to buy.

Meantime, Nike’s inventories totalled $6.7 billion at the end of the latest period, up 15% from a year earlier but down 9% from the prior quarter.

How did the stock move?

Nike closed at $116.87 per share on Tuesday, up 16% year-to-date. The company has a market cap of $182.5 billion. The stock was trading at $125.95 at the last check (Thursday 24 Sept.).

Buy, Hold, or Sell?

The 30 analysts offering 12-month price forecasts for Nike Inc have a median target of 148.50, with a high estimate of 185.00 and a low estimate of 107.00. The median estimate represents a +18.04% increase from the last price of 125.81, according to CNN Business.

The current consensus among 31 polled investment analysts is to Buy stock in Nike Inc, according to CNN Business.

Outlook

Nike is the biggest sneaker-maker in the U.S. and has been investing in its website, mobile apps and owned stores, as more consumers are steering clear of department stores and shopping malls.

Nike is opening sprawling flagship locations in major markets as well as smaller-format shops to serve as pick-up hubs for online orders. 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.

Several athletic-focused brands and retailers have also reported upbeat results in recent weeks, including Lululemon, Dick’s Sporting Goods, and Peloton, as consumers are looking for comfortable clothing and workout gear during the Covid-19 crisis. Nike, and its peers, have benefited from this trend. For example, Nike’s impressive earnings lead to a rise in the stocks of rival brands, Adidas and Puma, which rose sharply on Wednesday.

The pandemic is clearly accelerating Nike’s digital potential. The company has said its digital sales now make up at least 30% of its total quarterly sales, a threshold Nike had previously aimed to hit by 2023.

Looking to the first half of fiscal 2021, Nike said demand should pick up in the back half of the year, as consumers return to buying items at full price, helping Nike meet its full-year expectations.

Still, analysts not that Nike’s blowout earnings report doesn’t necessarily change the outlook for other apparel retailers, particularly the ones whose stocks are farthest away from their 52-week highs.

Those struggling names include: Under Armour, off its 52-week high by 48%; Tapestry, off by 45%; Ralph Lauren, off by 44%; PVH Corp., off by 42.5%; VF Corp., off by 31%; and Ross Stores, off by 29%.

The SPDR S&P Retail ETF (XRT) fell nearly 3% on Wednesday. It is up just 7% for the year.

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