Nike Q2 Results Top Estimates as Digital Sales, Growth in China Help Fuel Recovery

Nike

(Yahoo Finance)

Nike (NKE) reported fiscal second-quarter sales and earnings that handily beat analyst expectations, as store reopenings and digital sales helped provide a boost to results. Shares jumped 4% in after-hours trading.

Here were the main results from the report, compared to consensus estimates compiled by Bloomberg:

Q2 Revenue: $11.2 billion vs. $10.55 billion expected and $10.33 billion Y/Y

Q2 Earnings: 78 cents vs. 62 cents expected and 70 cents Y/Y

Nike returned to sales growth during the quarter ending in November after reporting declines in each of the prior two quarters, as virus-related shutdowns abated and consumer spending picked back up. Nike’s May quarter results had been especially dire: Sales plummeted 38% during the period as store shutdowns swept both China, the original epicenter of the coronavirus pandemic, and then the rest of the world. During the company’s August quarter, Nike stemmed its sales decline to just 1%.

“With healthy inventory positions across all geographies, our return to growth is a testament to our digital strength, as well as our disciplined marketplace and financial management,” Nike Chief Financial Officer Matt Friend said in a statement. “As we look ahead, we are focused on moving even faster against our strategic vision of Consumer Direct Acceleration and fueling sustainable, long-term growth and profitability.”

Digital sales have been at the center of Nike’s recovery, and the company had invested heavily in growing its direct-to-consumer channel even before the pandemic. Digital sales growth accelerated to 84% in Nike’s November quarter, even after stay-in-place orders were lifted and brick-and-mortar locations reopened more widely, in a testament to the long-lasting impact the coronavirus pandemic has had in driving sales online.

“This growth won’t always be so uniform, but we are growing the pie and taking share from competition,” CEO John Donahoe said during the company’s earnings call Friday evening. “The consumer shift to digital is permanent and our digital penetration will only increase in years to come.”

The company also raised its full-year revenue guidance on Friday, and now expects low-teens growth over the prior year, up from its previous guidance for high single-digit to low double-digit revenue growth for the year.

Still, Nike-owned store revenue remained pressured by the pandemic, and Nike said its physical traffic across regions was still down year-over-year during the November quarter. The company also experienced some temporary store closures during the quarter as COVID-19 cases resurged in some geographies, though more than 90% of Nike-owned stores are now open, it added.

By region, China again led sales gains during the quarter, as the country first hit by the coronavirus pandemic made further strides in its economic recovery. Greater China sales rose 14% in the second quarter, extending a rise of 8% from the first. North America, Nike’s largest geographical segment by revenue, saw quarterly sales return to growth with a 1% rise over the same period last year.

Heading into quarterly results, many analysts had struck an upbeat tone on Nike despite its earlier struggles with the pandemic.

“Beyond the near-term challenges presented by COVID-19, Nike’s strategy to accelerate its digital business—with a goal of digital representing 50% of Nike/partner sales—should continue to drive sales and operating margin expansion over the next several years,” Telsey Advisory Group analyst Joseph Feldman said in a note last week. “As such, we see further upside for the stock over the next 12 months, driven by relatively strong demand for athletic apparel and footwear, a proven execution track record, and a steady stream of product innovation.”

Shares of Nike have risen about 37% for the year-to-date through Friday’s close, outperforming against the S&P 500’s 14% rise over that period.

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