Strong demand for sportswear and digital strength are some of the factors propping up Nike Inc. (NYSE: NKE) sentiments in the market. The stock has been on a phenomenon run for the better part of the year, after bottoming from two-year lows early in the year. A 120% -plus rally in recent months affirms a perfect business environment triggered by the pandemic.
Solid Q3
The sportswear giant is fresh from reporting impressive strong second-quarter results amid a challenging macro-environment. The strong results could be attributed to, among other things, innovative products, and global brand momentum that continues to affirm Nike’s competitive edge in the industry.
The quarter's robust revenue growth was mostly impacted by a strong NIKE Brand, driven by digital growth of 84%. Strong digital sales helped offset a decline in the wholesale business, and Nike owned stores that were negatively impacted by a reduction in customer traffic owing to COVID-19.
While the company continues to experience a year-over-year decline in retail traffic in North America, business is slowly picking up, with 90% of the store opened. Return to growth in the second quarter is a testament to the digital strength expected to shape Nike’s long-term prospects.
E-Commerce Boost
Revenues in the second quarter were up 9% to $11.2 billion. However, the Gross Margin was down by 90 basis points to 43.1%, mostly driven by higher promotional activity. Net income, on the other hand, rose 12% to $1.3 billion, driven by strong revenue growth and low expenditure.
Some of the brightest spots in the second quarter include robust growth in China business, where revenues were up 24% year over year. The increase could be attributed to Nike becoming the number one sports brand on the popular Tmall platform, on attracting more than 4 million new members.
E-commerce has emerged as a key component of Nike’s business, with sales growing by 84%. Likewise, the just conclude Q2 marked the third straight quarter of 80% digital growth. With consumer shopping patterns shifting to digital, e-commerce is now woven into everything that Nike does.