Under normal circumstances, sprinters don't run marathons, and vice versa. It's two completely different styles of run that require different tactics, strategies, and training to complete. But if you had a sprinter with the endurance of a marathon runner, that would utterly change the game. Nike (NYSE:NKE) is showing its chops as both a long-distance runner and a short-distance runner as well, and fundamentally shaking up the market with it thanks to its latest earnings reports.
Blasting By the Others in the Short Run
Nike's quarterly report turned in some welcome news for those already in with the company, as it posted earnings of $0.78 per share. That's nicely above expectations, which were looking for the company to post $0.62 per share. Revenue also turned in an expectations-beating round, bringing in $11.24 billion for the quarter against an expected $10.56 billion.
It wasn't all good news for Nike, though it did do rather nicely with what it posted. Nike's gross margin, for example, slipped to 43.1%, thanks in large part to COVID-19 related disruptions, including some hits to the supply chain. While a hike in selling prices helped, it could only help so far before the prices would become untenable to slipping consumers.
The big winner for Nike, though, was its growing online sales operations. The value of online selling has been seen in a range of retailers—especially in the early days of the pandemic—but it's no different here; Nike's online shopping operations now represent 50% of top-line numbers, reports note. While most of Nike's stores are now open again, customer traffic has been a bit more hesitant. With direct-to-consumer selling up 32%, though, Nike doesn't have a lot of room to complain. The recently-hiked dividend likely doesn't hurt the company's investor perception, either.
Analysts Keep in Step
Meanwhile, the word from the analyst corridor is matching Nike step for step. The current consensus rating, based on our latest research, is a “buy”, comprised of—get this—one “sell” rating, three “hold” ratings, and 29 “buy” ratings. That's slipped just a bit from last month, when it was 30 “buy” ratings, but the ratios are still so skewed to “buy” that it will stay that way for some time. Sentiment has been swinging around in Nike's favor for the last several months; three months ago, and six months ago, the picture was identical with three “sell” ratings, five “hold” and 27 “buy”. The sellers and holders, meanwhile, appear to be heading for the door altogether.
The price target, meanwhile, has been on a rapidly uphill trend, going from $106.10 six months ago straight up to $151.75 today. That's up from $137.33 a month ago and $118.04 three months ago, so you can see a clearly upward trend in price targets for Nike. With Nike closing in on record highs—an intraday high was already reached, reports note—it's easy to see where there's such a push to get in. Just today, 11 separate analysts boosted their price targets, and nearly all of them maintain “buy” ratings.
Running Hard at Any Distance
The good news here for Nike is that it's learned the lessons of the last several months, and in grand style. It's absorbed the notion that a robust online presence is no longer a nice-to-have extra but rather a vital necessity, and it's rebuilt its systems accordingly. When almost half the company's top-line figures are coming out of online shopping, it's blindingly obvious that online is now a great place to be. However, even here some issues have emerged, as UPS (NYSE:UPS) has moved to put shipping limits on Nike products that will be a built-in limiter so that UPS doesn't suffer under the weight of all the online shopping products it now must move.
Sure, Nike comes with some risk. Not the least of which is that there are a lot of substitute goods out there. Though the sneakerheads out there will insist there is no shoe like Nike, the regular customer will wear most anything on his or her feet. With economic trouble seemingly brewing, and new economic stimulus packages looking half-baked at best, the idea of people buying expensive new shoes when bargain-priced ones are available seems less likely. However, Nike's expansion into other lines—especially outdoor wear and informal activewear—certainly won't hurt the company's bottom line.
There is risk with Nike, but Nike has seen many of these risks coming and has worked to ameliorate them accordingly. That's exactly the position most investors will want to hear; the company is ready to take advantage of good times and has insulated itself reasonably well against bad times. That makes Nike not only a champion runner in the short sprint, but puts it on an excellent track to win the marathon long run too.
Companies in This Article:
