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Nike rallies after profits show signs of bouncing back from pandemic

September 23, 2020, 9:17 AM UTC

Nike Inc. rallied in late trading after the world’s largest sportswear maker returned to profit and posted far better revenue than predicted, a sign it’s swiftly bouncing back from the pandemic slump.

Revenue amounted to $10.6 billion in its fiscal first quarter, Nike said on Tuesday, compared with the $9.11 billion estimate of analysts. The company posted 95 cents a share in earnings, topping the 46-cent projection.

Investors had been looking for evidence that Nike is navigating the coronavirus crisis, and that’s just what the company delivered. It had raised concerns the previous quarter, when falling sales led to a surprise loss and hurt margins. Now its turnaround appears to be solidly in motion, especially in China and via e-commerce.

Chief Executive Officer John Donahoe said “no one can match our pace” of pumping out new products, which has kept up despite disruptions from the health crisis.

“We’re getting stronger in the places that matter most,” the Silicon Valley veteran, who took the reins at Nike in January, said during a conference call. “We can thrive in this environment.”

Though sales didn’t grow — slipping about 1% from the year earlier — Wall Street was bracing for far worse. Nike also improved its margins more than expected, and direct sales rose 12%.

The shares jumped as much as 15% to $134 in after-hours trading. They had been up 15% this year through the close.

Nike expects revenue growth to range from the high single digits to the low double digits this fiscal year, with gross margins staying flat. Executives said full-price sales won’t see sequential improvement until the second half of the year.

The generally upbeat results gave a bump to other activewear companies, including Lululemon Athletica Inc. and Under Armour Inc., which both gained in extended trading.

Nike has stepped up efforts to sell more merchandise directly to consumers — an initiative that has led to job cuts. Relying less on outside retailers stands to benefit the Beaverton, Oregon-based company both during the recovery from Covid-19 and in the long run. Brick-and-mortar stores, especially ones in malls, were some of the hardest hit by the coronavirus.

Chinese Growth

China is further along in its recovery, and sales there reflect that. They were up 6% for the quarter. The country was quicker to come out of lockdowns, and the government is pushing citizens to exercise more — a boon for sportswear.

In North America, where the pandemic response has had varying success state by state, sales fell about 2%. The lack of sporting events has hurt demand for team-related apparel, though leagues such as the NFL have returned with limited crowds or empty stadiums.

Nike still has excess inventory to handle. Levels are up 15% compared with last year, due to temporary store closures and fewer wholesale shipments to retailers.

Foot traffic to shops also remains down as customers have been slow to return to malls and shopping streets — even though almost all of Nike’s stores have reopened globally. The silver lining: Those who do venture to retail outlets are more likely to make a purchase.