Athletic apparel company Nike (NYSE:NKE) posted a rare earnings loss on Thursday as sales suffered during the novel coronavirus. But the temporary setback shouldn’t dissuade you from buying Nike stock.
The company’s fiscal fourth-quarter earnings report isn’t really that surprising. The nation’s economy is struggling, unemployment is in double digits, and because of the Covid-19 shutdown, Nike’s stores have been closed around the country.
But there’s plenty of reasons to be optimistic about Nike stock headed into the second half of 2020.
Nike Earnings at a Glance
First, a look at the numbers. Nike posted revenue of $6.3 billion and an adjusted loss of 51 cents per share. Analysts had been expecting $7.52 billion in revenue and adjusted EPS of 9 cents.
Overall, the company posted a net loss of $790 million, compared to a net gain of $989 million in the same quarter a year ago. Revenue dropped by 38%, and adjusted earning per share were down 62 cents.
In just looking at the numbers, it was a devastating report, which is why NKE stock fell by 3% after hours on Thursday when the earnings report was released.
The company did not release guidance for fiscal 2021, citing unknowns from the Covid-19 pandemic that continues to sweep over the U.S.
However, it’s not as if Nike will have trouble paying the bills. It maintains a market capitalization of more than $157 billion. Nike ends the quarter with nearly $9 billion of cash and short-term investments, and $12.5 billion in total liquidity.
For the year, Nike stock is roughly flat, losing 38% as the stock market collapsed in February and March, then making up all those losses over the last three months.
There’s Reason for Optimism
While Nike took a loss in the last quarter, circumstances headed into the 2021 fiscal year are notably different.
Nike stores have largely reopened. During the last quarter, roughly 90% of the company’s stores outside South Korea and China were shut down for eight weeks. But today, Nike says that 85% of its stores are reopened for business.
More importantly, Nike saw substantial online and digital growth during the pandemic, and it’s taking steps to capitalize on that and increase its e-commerce offerings.
CFO John Donahoe says weekly active users on the company’s Nike Training Club app tripled in the quarter, with nearly 5 million workouts per week in April.
The company also says Nike digital growth increased each month during the most recent quarter and the trend is continuing even as its brick-and-mortar stores reopened. CFO Matthew Friend explained in a conference call with analysts:
We now see that our owned and partner digital could grow to 50% of our total business in the foreseeable future, plus our measured investment in mono-brand stores will further catalyze digital growth and create new distribution for our largest growth and market share opportunities in Women’s and Apparel. We are calling this next phase of the Consumer Direct Offense an acceleration for a reason because it will drive greater growth, it will scale Nike’s direct consumer connections in our most profitable channels driving higher consumer lifetime value and it will enable us to reposition our resources to accelerate our transformation to a digital-first company.
The Bottom Line for Nike Stock
If anything, you can argue that Nike was a little slow to jump on the digital bandwagon, but it’s making up time now.
Fortunately for investors, Nike has some of the most powerful brands in the space, including its legendary Jordan shoe line, and it remains the No. 1 brand in each of its 12 key cities.
There are plenty of positives right now for Nike stock. The company topped $1 billion in annual revenue for China and EMEA nations (Europe, the Middle East and Africa) for the first time. The Jordan brand alone increased in greater China by more than 50% in the fiscal year and brought in nearly $1 billion in revenue there.
Nike will build its global footprint. It will increase digital growth as more people avoid gyms and fitness centers in favor of online workouts. The company will seek to capitalize on opportunities in the Women’s and Apparel sectors to gain market share and broaden its offerings.
Overall, Nike stock has a buy recommendation in my Portfolio Grader, where it as a “B” grade right now.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
