What's In Store For Nike's Friday Report?

After the market close on Friday, the athletic apparel legend will report its second-quarter fiscal 2021 earnings. After initially falling as COVID-19 started its relentless march across the globe, sales are rebounding as Nike Inc NKE was able to adapt in a digital framework, which ended up making all the difference. Obviously, there are difficulties still, but investors are hoping that digital growth will more than offset them. Despite the lack of a robust sales recovery, shares have risen 37% year to date, doubling the market over the last three months and the sportswear power's longer-term outlook is strong despite tough economic conditions, with Lululemon's LULU recent post-earnings drop as an example.

The Implications Of The Covid-19 Crisis

Overall revenue declined by 1% in the company's fiscal first quarter so it will help that nearly all of its stores are open again. However, with coronavirus cases surging worldwide, it's unclear if consumers will be willing to shop in person. Fortunately, the athletic giant has a robust digital channel to help shoppers who would like to buy its products from the safety of their homes.

Analyst Matthew DeGulis evaluates that the pandemic has supercharged the Nike's strategy to shift shoppers to its online, direct-to-consumer channel, as it has added millions of new consumers over the past few months. That should result in much more efficient marketing spending.

Nike's Footprint Is Unmatched

But given its run, there could be increased pressure for Nike to outperform and give a strong guidance. Nike has done what is nearly impossible in its ever-changing industry. The Oregon-based company has thrived in fashion because of its ability to create trends, adapt, and attach its Swoosh sign to the biggest sports, athletes, and cultural icons in the world. Despite the rise of Lululemon and a resurgent Adidas ADDYY in North America, Nike's influence on sports and fashion has arguably never been bigger. Moreover, its digital infrastructure is unmatched among peers.

The Strategy

Nike has cemented its sports position with soccer and basketball, while it is also the official sponsor of the NFL, the richest and most important sport in the U.S. Moreover, Nike is well positioned in a world where consumers dress more relaxed than ever, especially with the pandemic-induced lockdowns that brought home offices and classrooms.

Nike has been transitioning to a higher-margin, direct-to-consumer model for years. Besides apps, this push includes its mind-blowing reach across social media on platforms like Facebook's FB Instagram.

Brick-And-Mortar Stores Aren't Going Anywhere

Nike is also working to streamline and digitalize its supply chain. Rather than abandoning brick-and-mortar in the Amazon.com Inc AMZN age, it has strengthened its partnerships with companies such as the Foot Locker FL and revamped its own stores in cities where it is worth being.

Nike's brick-and-mortar business is likely to remain vital. Its Q4 FY20 sales fell 38% because of coronavirus-based closures. Fortunately, e-commerce space was booming, with digital sales up 75% in Q4 FY20 and 82% last quarter.

Expectations

Investors will want to look for what management has to say about holiday sales and if the seasonal increase in consumer spending is making its way to Nike. As inventory was up 15% at the end of August compared to last year, it has plenty of inventory to sell. On average, Wall Street expects $10.55 billion in revenues and earnings per share of $0.61. If this ends up being the case, it implies a 2.2% revenue growth and a 13% decrease in EPS.

But, Nike is projected to return to growth in impressive fashion in FY2021 after FY20's sales dipped 4.4% with positive developments on coronavirus vaccines. From e-commerce to international markets and product innovation, Nike has what it takes.

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