Nike Inc (NYSE:NKE) ripped higher after reporting Q3 (Feb) earnings this week that were much better than some feared. Rivals Adidas (ADDYY) and Puma both recently reported sharp declines in China. While Nike saw a big drop in sales in China, it was able to navigate the downturn better than expected, which is helping the stock jump higher. Nearly 80% of stores in China have now reopened, including its first store in the Wuhan area, which was ground zero for the outbreak. Nike said on the call it's seeing the other side in terms of the crisis in China.
Commentary from the company’s conference call was truly striking when it comes to understanding the global nature of the COVID-19 factor:
"In the third quarter, on a currency-neutral basis, Greater China revenues were down 4 percent following 22 consecutive quarters of double-digit growth. However, during the first two months of the third quarter, Greater China's revenue grew strong double digits, offset by the impacts of COVID-19 beginning in late January. At the peak in February, roughly 75 percent of NIKE-owned and partner doors in Greater China were closed with others operating on reduced hours. Currently, nearly 80 percent of doors are open in Greater China with an even higher rate in key cities. Beginning March 16th, all NIKE-owned stores, outside of Greater China, Japan and Korea were closed to help curb the spread of COVID-19."
Nike Inc (NYSE:NKE) frames itself as a company that designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide.
The company offers NIKE brand products in six categories, including running, NIKE basketball, the Jordan brand, football, training, and sportswear. It also markets products designed for kids, as well as for other athletic and recreational uses, such as American football, baseball, cricket, golf, lacrosse, skateboarding, tennis, volleyball, walking, wrestling, and other outdoor activities; and apparel with licensed college and professional team and league logos, as well as sells sports apparel.
In addition, the company sells a line of performance equipment and accessories comprising bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment for sports activities; and various plastic products to other manufacturers.
Further, it provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks; and action sports and youth lifestyle apparel and accessories under the Hurley trademark.
Additionally, the company licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks.
It sells its products to footwear stores; sporting goods stores; athletic specialty stores; department stores; skate, tennis, and golf shops; and other retail accounts through NIKE-owned retail stores, digital platforms, independent distributors, licensees, and sales representatives.
Our NKE Earnings Summary:
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NIKE beats by $0.23, beats on revs
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Reports Q3 (Feb) non-GAAP earnings of $0.78 per share, $0.23 better than the S&P Capital IQ Consensus of $0.55; revenues rose 5.1% year/year to $10.10 bln vs the $9.56 bln S&P Capital IQ Consensus.
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Note: there was a $0.25 non-cash charge associated with the transition to a strategic distributor model in South America
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Revenue growth was driven by 13% currency-neutral growth in NIKE Direct with digital growth of 36% and strong growth across EMEA, APLA and North America, offset by the impact of COVID-19 in Greater China. Digital sales in Greater China increased more than 30% while brick and mortar retail sales were impacted by temporary store closures related to COVID-19.
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COVID-19 Update: As previously disclosed, operations in Greater China were materially impacted as a result of COVID-19. In Q3, on a currency-neutral basis, Greater China revenues were down 4% following 22 consecutive quarters of double-digit growth. However, during the first two months of Q3, Greater China's revenue grew strong double digits, offset by the impacts of COVID-19 beginning in late January. At the peak in February, roughly 75% of NIKE-owned and partner doors in Greater China were closed with others operating on reduced hours. Currently, nearly 80% of doors are open in Greater China with an even higher rate in key cities. Beginning March 16, all NIKE-owned stores, outside of Greater China, Japan and Korea were closed to help curb the spread of COVID-19.
Our NKE Conference Call, Analyst, and Research Notes:
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On call, co says it sees four phases : containment, recovery, normalization and return to growth.
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Data from China, Japan, Korea, containment took 5-6 weeks; all three markets are thru recovery and moving into normalization, consumers are coming back in these markets.
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In the US, co is earlier in the cycle. Seeing strong digital growth in US, co is managing inventory for when US recovery comes; nobody knows how long recovery will take.
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"In the third quarter, on a currency-neutral basis, Greater China revenues were down 4 percent following 22 consecutive quarters of double-digit growth. However, during the first two months of the third quarter, Greater China's revenue grew strong double digits, offset by the impacts of COVID-19 beginning in late January. At the peak in February, roughly 75 percent of NIKE-owned and partner doors in Greater China were closed with others operating on reduced hours. Currently, nearly 80 percent of doors are open in Greater China with an even higher rate in key cities. Beginning March 16th, all NIKE-owned stores, outside of Greater China, Japan and Korea were closed to help curb the spread of COVID-19."
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Pivotal Research Group raises their NKE tgt to $84 from $78. Analyst Mitch Kummetz said, "NKE reported a 3Q20 sales/EBIT/EPS beat. As expected, China was weak, down 4%, but that was better than the 10% decline we were modeling. Also, not surprising is that NKE isn't providing 4Q20 guidance due to the uncertainty related to COVID-19. Additionally, not unexpected was NKE's positive commentary on product performance prior to the onslaught of this virus. That said, a couple of items really jumped out as from the company's earnings call. First, China sales are expected to be flat for 4Q. We're surprised that this region is recovering as quickly as it is. Second, North America digital sales were up triple digits over the last week. We're surprised that consumers are showing much appetite for buying products other than toilet paper, hand sanitizer and N95 masks. We're still modeling weak 4Q20 results but not as bad was we were previously anticipating. The company also left us more confident in its ability to get to the 4th phase of COVID-19 (return to growth) in FY21."
