Is Nike Stock a Buy?
Nike (NKE -2.46%), one of the world’s largest athletic footwear and apparel brands, faced an unprecedented crisis earlier this year as the COVID-19 virus spread like wildfire across the globe. During its fiscal fourth quarter, from March to May, about 90% of Nike-owned stores were closed for about eight weeks due to global shutdowns and movement restriction orders.
These closures upended the company’s growth plans, but by the end of June, 85% of stores had reopened in North America, while around 90% of stores in Europe, the Middle East and Africa (EMEA) were closed. operational again. . The temporary shutdowns led Nike to report a 38% drop in year-over-year revenue for its fourth quarter, as well as a net loss of $790 million.
Despite seemingly lackluster results, Nike shares hit new all-time highs even as the pandemic has yet to abate in many parts of the world. Is the company able to recover from this crisis, and does that make the stock a buy?
Successful Pivot to Digital Sales
Even as stores closed one by one as a result of the coronavirus, Nike managed to shift some of its sales to its digital channels. This pivot to digital enabled the company to post a 75% increase in its digital sales over the quarter. The increase was widespread across all geographies, and digital sales ended up accounting for 30% of total revenue.
CEO John Donahoe proudly announced that Nike had achieved its 30% digital penetration goal more than two years ahead of plan. This objective was set in fiscal 2018, and the company gave itself five years to achieve it. Now, management has set a target of 50% of sales coming from digital channels in the coming years.
Nike gained 25 million new members through its app suite during the quarter, and customer engagement is expected to increase further as the company accelerates its digital transformation.
In the sports footwear category, Nike continued to hold pole position, with seven of its sneakers appearing in the top 10 best-selling sports shoes so far in 2020. This dominance demonstrates the brand’s strong appeal. and should allow the company to rebound strongly once the crisis subsides.
Innovative new shoes
Nike is also well known for its innovative footwear that has pushed the boundaries of science. His famous but controversial Vaporfly running shoe, released in 2017, was nearly banned by World Athletics. The shoes were worn by many marathon winners in 2019 and led to new rules being set on the maximum thickness and number of carbon fiber plates a shoe can hold. Nike’s advanced Vaporfly shoes have been proven to help runners lose less energy per step, increasing overall running efficiency. In a marathon where every little bit counts, this detail can make the difference between winning and finishing second. In response to the new World Athletics rules, Nike has announced its next-generation Alphafly Next% shoes as the successor to the Vaporfly.
However, since this shoe is expensive and delicate, the company released a popular version of the Alphafly called the Air Zoom Tempo Next%. Its price is much cheaper at $260 and it is more durable than the Alphafly used for serious competitions. This shoe will be available for sale on October 1, 2020.
The company has also very smartly launched new shoes associated with events or movies. Its new line of “Wing It” footwear reflects the venue for this year’s US Open at Winged Foot Golf Club, and a new “Nightmare on Elm Street”-themed sneaker pays homage to the cult classic horror series of 1980s.
Always ready for long-term growth
Nike should continue to do well during the crisis by leveraging the strength of its brand and digital channels to drive more sales. The brand continues to dominate the minds of consumers, and with an enticing lineup of new shoe releases to come, it should continue to generate excitement and hype. Although the stock is making new highs, it still seems like a worthwhile buy if you have a five to ten year investment horizon.