Nike Inc (NYSE:NKE) has felt the brutal impact of the novel coronavirus pandemic in 2020. During the worst of the March market meltdown, Nike stock was down as much as 40% from its January highs. However, it has since staged a steady recovery, due in no small part to its strong e-commerce performance. Now trading at over $97 per share, Nike is on track to start posting growth for 2020.
When Nike reported a rare, adjusted loss of 51 cents per share at the end of June, I wrote that it was still a buy. It still holds a B-rating in my Portfolio Grader, I still stand by that recommendation and the stock is up a few points since then.
Nike Took a Hit When Its Stores Were Closed
The pandemic and resulting lockdowns were bad news for Nike’s retail outlets. Both Nike-branded stores, and retail outlets that carry Nike products were temporarily closed. The results of that period of retail closure — which is still in the process of being lifted — were brutal. Retailers like Macy’s (NYSE:M) that lack a strong e-commerce capability were especially hard hit.
Nike was in a far-better position than many retailers, with a strong online presence. That helped temper the damage, but its fiscal fourth-quarter revenue was still down 38% year-over-year, at $6.31 billion compared to $10.18 billion last year. Online wasn’t all roses, though; those web sales do come at a cost.
Online Shopping a Success, But Does Have a Cost
Nike says digital sales exploded during the quarter, up 75%. They accounted for 30% of the company’s total revenue. Nike had been hoping to hit that level by 2023, but the pandemic gave its plans a big boost. The mix of in-store and online sales is generally a good thing. It provides resilience to events like the pandemic, and gives Nike access to markets that lack physical retail outlets.
However, there is a downside to online shopping: shipping costs and returns. When customers try on Nike shoes in a store, they know they have the right size. When they buy online, they’re guessing. There is also an expectation of free shipping. Nike’s online store offers free shipping for all orders by members, and guests get free shipping after spending $150. Returns are free for members, and free for anyone who drops them by a Nike retail store within 30 days — even if they’ve been worn and used.
There’s a cost to free shipping and a generous return policy. For Nike, that cost is reflected in margins that dropped from 45.5% a year ago to 37.3% in its last quarter.
Working From Home Boost
In 2017, Deirdre Clemente, a University of Nevada, Las Vegas history professor told Business Insider: “Athleisure is the new casual … Styling is evolving to merge business casual and sportswear into one.”
When the coronavirus pandemic resulted in millions of American working form home, business attire went out the window. Instead, comfortable sweats and athleisure wear became the normal. That’s been good news for Lululemon (NASDAQ:LULU) stock in 2020, and it’s helping Nike to move clothing as well.
Bottom Line on Nike Stock
As of two weeks ago, Nike said 90% of its retail stores globally had re-opened. And in June, online sales had continued to climb, showing triple-digit growth. The company isn’t offering a complete picture of its fiscal 2021 projections, but does say it expects revenue to be “flat-to-up” compared to the previous year. Nike’s CEO assured investors: “Amid macroeconomic uncertainty, we will continue to operate with agility, focused on optimizing marketplace supply and demand, cost management and leveraging our financial strength to drive long-term sustainable, profitable growth.”
There’s no doubt the coronavirus pandemic hurt Nike and Nike stock. Its retail stores were shuttered, and it still has a backlog of inventory that had been destined for partners whose own stores were closed. However, the company was bolstered by its strong e-commerce operation. In addition, it’s in a good position to take advantage of the athleisure trend that has only become stronger because of people who are working from home.
Even if revenue growth is on the low end of Nike’s expectations and “flat” for fiscal 2021, Nike stock at under $98 still has upside compared to its $104.49 high close in January. And it’s also a stock that had posted consistent, 89% growth in the five years leading up to the market meltdown.
This year has been painful, but I think Nike’s stock will fully rebound and more.
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.