Nike earnings: what happened with NKE?


Key points to remember

  • EPS was $0.95 versus analysts’ expectation of $0.41.
  • Revenues were higher than expected.
  • Gross margin exceeded analysts’ expectations.
  • Nike’s digital channels have grown rapidly.

What happened

Nike’s quarterly profit, revenue and gross margin all beat analysts’ forecasts. Despite an annual decline in physical retail traffic due to the COVID-19 pandemic, Nike’s quarterly profits increased from the prior year quarter. Revenue was down slightly and gross margin fell year-over-year, but was up from the prior quarter. Nike’s performance in the first quarter was driven by strong sales growth across Nike’s digital channels.

(Below is the original Earnings Snapshot from Investopedia, published September 21, 2020.)

What to look for

Nike Inc. (NKE), the global leader in sportswear, is among many retailers and consumer products companies affected by the COVID-19 pandemic. Temporary store closures decimated Nike’s sales and profits during the company’s fourth fiscal quarter ended May 31, 2020. Although many Nike stores have since reopened, the negative impact of the pandemic on the economy will continue to affect its activities.

Investors will gauge the impact of store reopenings on the company’s financial results when Nike reports its results on September 22, 2020 for the first quarter of fiscal 2021.Analysts expect a sharp drop in revenue and earnings per share (EPS) from the year-ago quarter.

Investors will focus on Nike’s gross margin, a key metric to gauge the retailer’s operational efficiency. Analysts expect gross margin to rebound from last quarter’s sharp decline, but expect it to still be down from the same three-month period a year ago.

Despite Nike’s financial struggles, its stock managed to outperform the broader market by a wide margin. After cratering with the rest of the market earlier this year as fear over the coronavirus mounted, Nike shares rebounded and hit new highs. Shares of the company have posted a total return of 31.5% over the past 12 months, well above the S&P 500 total return of 10.4%.

Source: Trading View.

Nike stock swung sharply even after its rebound in the second half of March. One of the stock’s biggest pullbacks came in late June after the company released its fiscal 2020 fourth quarter results that largely missed analysts’ expectations.Nike posted its first quarterly loss in at least 16 quarters, losing $0.51 per share compared to earnings of $0.62 per share in the same quarter a year earlier. Revenue decreased 38.0%, marking the first decline in revenue in at least four years.

Nike said about 90% of its stores were closed for about eight weeks at most global locations during the fourth quarter in North America, Europe, the Middle East, Africa, Asia-Pacific and in Latin America. This does not include Greater China. While the retailer’s online digital sales grew 75% in the quarter, they still represent just 30% of total revenue.

The company said in late June that about 90% of its stores were open globally.Shares of Nike traded sideways for about a month after the report and began to significantly outperform the rest of the market in early August. Despite this, analysts have a sober outlook for the first quarter of fiscal 2021. They expect EPS and revenue to decline by 52.4% and 16.3%, respectively.

Key Nike metrics
Q1 FY 2021 (estimated) Q1 2020 (actual) Q1 2019 (actual)
Earnings per share $0.41 $0.86 $0.67
Turnover (B) $8.9 $10.7 $9.9
Gross margin 42.7% 45.7% 44.2%

Source: visible alpha

Apart from earnings and revenue, investors will also focus on Nike’s gross profit margin, also referred to as gross margin. This key metric reflects gross profit, which is sales less cost of goods sold, as a percentage of total sales. A company can increase its gross margin by increasing sales or reducing costs, or a combination of both. In the midst of a declining economy, when businesses typically experience declining sales, they need to find ways to cut costs in order to maintain profit margins.

Nike’s gross margin fell more than 8 percentage points to 37.3% in the fourth quarter of fiscal 2020, compared to the same quarter a year ago. Prior to the fourth quarter, Nike’s gross margin ranged between 43% and 46% in recent years.The company attributed the lower fourth-quarter gross margin to factory cancellation charges, increased inventory obsolescence reserves and fixed supply chain costs on lower wholesale shipments. , all of which were primarily due to the impacts of COVID-19.Analysts expect Nike’s gross margin in the first quarter of fiscal 2021 to be 42.7%, better than the fourth quarter, but down about 3 percentage points from the quarter of the previous year and below its historic range in recent years.


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