Nike stock was down more than 4% on Friday, after the athletic company’s surprise fiscal fourth-quarter loss, showing that even the strongest retailers with online platforms were hurt by pandemic-related store closures.
Nike (NKE) said it lost 51 cents in its quarter, while analysts were expecting a profit of 4 cents a share. Hopes were certainly very high going into the report, with multiple analysts raising their price targets this week, arguing that even if the company did turn in an ugly quarter, it will be a long-term retail winner.
Therefore, while the loss was a big miss, it’s not surprising that many bullish analysts are now still upbeat about the company’s long-term prospects.
BMO Capital Market’s Simeon Siegel reiterated an Outperform rating and $100 price target on the stock: “Although Nike will feel pandemic pressure, we expect it to go on the offensive, strategizing how to thrive post-Covid-19, rather than simply survive.”
Stifel’s Jim Duffy reiterated a Buy rating and $110 price target: “We see Nike uniquely positioned to capitalize on a shift to digital consumer engagement and continue to advocate Nike shares as a core holding for large cap growth investors.”
And Susquehanna’s Sam Poser reiterated a Positive rating and $130 price target: “We think short-term headwinds are masking Nike’s long-term potential.”
Certainly, they may be right: Nike shares have done well because of its dominant position in the space, which has gotten a boost from the athleisure trend—one that’s only grown with stay-at-home orders. The company also has a strong online presence and direct-to-consumer capabilities.
Yet the results show that even the strongest retailers with surging online sales still need physical stores. Nike highlighted this issue in the press release, saying that its results were “significantly impacted by physical store closures” across the globe. During the conference call, the company said that it expected subsequent quarters to improve, citing the expectation that retail reopenings will spur more normal supply and demand.
Data from Placer.ai showed that in January and February of this year, visits to Nike stores were up 8% and 20.5%, respectively (before closures began in earnest in March). That’s a significant source of revenue that Nike suddenly lost, and it’s not a stretch to assume that some shoppers who would have bought in store didn’t seek out the brand online.
We saw the same pattern when Lululemon Athletica (LULU) reported downbeat earnings earlier this month: The company didn’t swing to a loss, but it too missed high expectations and didn’t even bother to report same-store sales, blaming the pandemic.
Nike and Lululemon are analyst favorites that have plenty of catalysts in their favor, both related to the coronavirus—which has people dressing more casually and focusing in health and workouts—and beyond. Yet even successful players that have seen online orders surge are struggling to overcome the loss of sales at physical locations.
So while e-commerce is becoming increasingly important, this is another reminder that not all stores will disappear.
Write to Teresa Rivas at teresa.rivas@barrons.com
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June 26, 2020 at 10:43PM
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Nike’s Earnings Show Why Stores Still Matter - Barron's
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