Why Nike shares fell 7% today

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What happened

Nike (NYSE: NKE) Stocks plunged today along with the wider market as fears of a second wave of coronavirus infections and negative comments from Federal Reserve Chairman Jerome Powell on the economic recovery gripped investors. Consequently, the S&P500 ended down 5.9%, while Nike lost 6.8%.

So what

Nike was one of many consumer-facing brands to fall today as the consumer discretionary The sector is very sensitive to the progress of the economic recovery and a possible resurgence of COVID-19 infections. A number of its peers also fell today, including under protection, Adidas, and Foot locker.

Image source: Nike.

The COVID-19 pandemic forced Nike and its retail partners to close many of its stores around the world, although some have since reopened. While the swoosh company is unquestionably taking a financial hit from the pandemic, the stock came close to hitting an all-time high just days ago, a sign that investors were looking beyond the impact of the pandemic on the sportswear giant.

Today’s news may have changed that, however.

In its latest update on May 14, Nike said its stores in China and South Korea had reopened and it was encouraged by the recovery in those markets. Management also touted the digital connections it was making with customers during the crisis and said it was seeing higher-than-expected demand on the digital side of the business.

The report helped launch a rally in the stock and reinforced the company’s strategic shift to the direct-to-consumer channel, which includes digital storefronts like its apps and websites.

Now what

While Nike may be expanding its competitive edge during the crisis, fears of a new wave of infections seemed like a reality check for investors, as the company is still heavily dependent on physical business partners like Foot Locker. , most of which have been closed. during the crisis.

The company will give investors another update when it releases its fourth quarter results on June 25. Analysts expect the quarter to reflect the brunt of the impact of the novel coronavirus and see revenue fall 23.3% to $7.81 billion, and earnings per share down $0.62 . at $0.15.

For Nike to weather the peak of the pandemic while making a profit would be a clear sign of its strength, but many of its peers won’t be so lucky.

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Jeremy Bowman owns shares of Nike. The Motley Fool owns shares and recommends Nike, Under Armor (A shares) and Under Armor (C shares). The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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