Nike sales top expectations despite coronavirus

Nike Inc. topped Wall Street’s expectations for third-quarter earnings and revenue, despite the coronavirus pandemic that roiled China right as Lunar New Year kicked off.

In a Nutshell: Describing the coronavirus pandemic as an “extraordinarily dynamic time,” Nike Inc. president and CEO John Donahoe believes the company’s strength is evident not only in its innovative product but also in how it rebounded in the Greater China region following a third-quarter outbreak-induced lockdown.

“We know it’s in times like these that strong brands get even stronger,” he said. “As we start to see recovery in China, no one is better equipped than Nike to navigate the current climate.”

Revenue climbed by double digits in the first two months of the quarter, Nike said, though 75 percent of its stores closed or limited their hours in line with the Chinese government’s quarantine restrictions.

Close to 80 percent of stores in Greater China are now operating again, with an emphasis on bringing big-city stores back on line. Stores outside of Greater China, Japan and Korea remain closed as of March 16 to help mute the coronavirus outbreak.

The company’s earnings reflect the pandemic’s impact. Gross margin fell by 80 basis points to 44.3 percent, primarily attributable to the virus, increased rebates to wholesale partners and costs associated with factory cancellations as the company manages inventory amid decreased demand.

Inventories were up 7 percent to $5.8 billion due to COVID-19—although Nike said it had already increased inventory in anticipation of strong demand this year.

Sales: Third-quarter revenue totaled $10.1 billion, growing by 5 percent over the comparable period, and topping the $9.8 billion Wall Street was expecting. This was largely driven by 13 percent currency-neutral growth in Nike Direct revenue and 36 percent growth in digital revenue, the company said.

Although the China shutdown dampened brick-and-mortar sales, quarterly digital sales grew by 30 percent in the region.

Earnings: The company reported third-quarter diluted earnings per share (EPS) of 53 cents, matching Wall Street estimates. The third quarter also saw a 25-cent non-recurring impact concerning the company’s transition to a strategic distributor model in Argentina, Brazil, Chile and Uruguay.

CXOs Take: Nike executive vice president and chief financial officer Andy Campion said: “As we close Q3, Nike’s brand leadership and business momentum have been stronger than ever and unrivaled around the world. Amidst the dynamics that we are facing, we are executing against an operational playbook that will expedite Nike’s return to profitable, capital-efficient growth leveraging our strong financial position, the strongest partnerships across the value chain in our industry, and our leading digital capabilities.”

Source: Sourcing Journal