Nike ( NYSE:NKE ) is growing again. Just two quarters after reporting its worst sales slump on record, the company announced rising sales across each of its geographies, including in the key U.S. market. Inventory levels dropped and costs fell, too, which gives management plenty of flexibility heading into the second half of fiscal 2021.
CEO John Donahoe and his team said in a conference call with analysts last week that the pandemic has them feeling cautious about this short-term period. But they’re as bullish as ever about Nike’s opportunities to accelerate sales growth and hit a new level of profitability over the next few years.
Let’s look at a few highlights from that call and dig down a bit on what they might mean for investors.
Image source: Getty Images.
1. How Nike recovered
Our return to growth this quarter was fueled by a relentless innovation pipeline.
Nike credits its innovation for helping it notch a 1% growth uptick in the U.S. just two quarters after posting a 46% slump during COVID-19 retailing shutdowns. That innovation applies to product launches like new basketball and running-shoe brands, as well as improvements in the digital ecosystem.
Executives highlighted the growing power of their core footwear app, which was instrumental in keeping customers engaged in the brand and pushing digital sales to new highs.
Nike’s e-commerce level recently passed the 30% rate that management had initially targeted for late 2023, and there’s every reason to expect further gains ahead. “The consumer shift to digital is permanent,” Donahoe said, “and our digital penetration will only increase in years to come.”
2. A slimmer business that’s still investing in growth
We set clear measures of success for the first half of this fiscal year, and now, six months later, we’ve exceeded those goals.
Nike posted a lower gross profit margin this quarter, just as management had warned it might, back in late September. But the company had to cut prices less aggressively than management had initially expected. As a result, Nike entered the holiday season in a strong inventory position that might support a profitability rebound starting as early as next quarter.
The company is gaining efficiency, too, with selling expenses dropping and marketing returns improving in the digital-advertising channel. These wins have allowed Nike to boost spending in high-return areas like product development and the e-commerce segment. “Our financial results … are proof that Nike has recovered and is moving forward,” Friend explained.
3. Cautious in the short term, but with bold bets on 2022
While we expect continued volatility in the short-term due to the pandemic, a faster first-half recovery has mitigated the largest operational risks.
Nike raised its sales, earnings, and profitability outlooks for fiscal 2021 while noting some major risks ahead around economic growth rates and COVID-19 retailing restrictions. Management is still cautious about that short-term period, and the restraint is reflected in its decision to limit inventory purchases and continue the hold on stock repurchases. Holiday shopping traffic at stores will likely be far lower than in a normal year, after all, and spending trends could easily be disrupted again.
The bigger-picture outlook is as bright as ever, though, and investors don’t have to rely only on management’s words to see that fact. Metrics like the recent 19% sales-growth spike in China — or the 84% increase in digital sales — demonstrate that the brand is primed for many years of strong earnings and cash flow ahead, even if the next six months are volatile. That’s why it shouldn’t matter much to shareholders if Nike takes a small step backward before racing ahead in fiscal 2022.
- Nintendo profits cool in latest quarterly earnings report
- Girls recap: Papio beats East, earns No. 1 district seed
- Microsoft posts 29 percent year-over-year drop in quarterly Xbox 360 platform revenue
- XCOM delayed as Take-Two posts down quarter
- Activision Earnings Call Reveals Top Games and Proves Microtransactions Are King
- Take-Two quarterly loss doubles to $28.8 million, hints at new GTAs
- How's EA Doing? Key Takeaways From Its Latest Earnings Report
- Take-Two gets a lump of coal for holiday quarter
- Star Wars: The Force Awakens helps Disney land record $2.9 billion quarter
- Second WOW expansion 'scheduled' for '08
- Activision Reports Strong Earnings
- Activision Blizzard's billion-dollar quarter beats expectations
- Apple sold a record 51 million iPhones last quarter
- Accounting change muddles EA Q2 earnings
- NCsoft quarterly numbers dip
- Destiny 2 Pre-orders Exceed Destiny 1's; Overwatch And Hearthstone Bring Blizzard A Big Quarter
- THQ quarterly sales spike
- Zynga reports $52.7 million loss for third quarter
- Take-Two suffers $8.2 million quarterly loss
- Kotick Addresses Infinity Ward Situation On Earnings Call
Nike's Second Quarter Earnings in 3 Quotes have 749 words, post on www.fool.com at December 24, 2020. This is cached page on TechNews. If you want remove this page, please contact us.