Market Overview

Nike Just Did It

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Nike Inc (NYSE: NKE) had one big question to answer in its earnings report last week, as investors were waiting to see progress towards a return to growth. Nike delivered, showing that sales have sharply rebounded from the spring months.

Rebound

Nike's previous quarter saw the worst impact from pandemic-induced closures. Metrics were brutal, as sales plummeted 38%. Over the last two years Nike has constantly beaten revenue estimates. It has even beaten EPS estimates 88% of the time. This time, it crushed both earnings and revenue estimates, causing its stock to jump 12%. Revenue easily exceeded the $9.11 billion estimate, as it amounted to $10.59 billion. The boost in revenue largely came from 82% growth in online sales. Moreover, top lines made their way to the bottom line, as earnings per share were more than twice the expectation of $0.46 at $0.95.

Uncertain environment – sharp recession

Despite leading the way through the pandemic, Nike will have to face an uncertain macro-environment just like every other retailer. The calendar has been redefined this year with an everything-but-ordinary back-to-school season. Demand is being hampered by a sharp recession, continued COVID-19 outbreak, and fear of a second lockdown, as well as reduced government fiscal support spending. However unlike many of its peers, Nike issued fiscal 2021 guidance of high single-digit to low double-digit revenue growth from the year-ago period.

Outlook

Over the last three months Nike's stock has risen 18%. Like all other apparel and shoe sellers, Nike has been impacted by the coronavirus pandemic. Yet analysts believe Nike has what it takes to continue being a winner. After all, it took control of its own destiny by pulling its products from nine multi-branded wholesale accounts (including Amazon.com (NASDAQ: AMZN) and focusing on its own direct-to-consumer offerings. With its latest earnings report, analysts expect to see progress towards the ongoing digital transformation and evolution to a higher margin, higher return model. Thanks to its hyper-digital strategy, Nike is one of the few firms uniquely positioned to weather retail turbulence. The bottom line is that despite a short-term disruption,  Nike is poised for long-term dominance because it is strong in the places that matter most.

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