What Drove Nike's Impressive Earnings

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Nike  (NKE) - Get Report wiped the floor clean on revenue and earnings on the strength of its digital sales and operating leverage.

The stock was up 4.5% in the past month and trading at a rich valuation — partly due to lower interest rates and accelerated e-commerce adoption — but the market seems willing to pay the current multiple. The earnings print was so impressive, the stock rose 8% to $126 a a share.

Nike has had a strong run this year with a promising rebound from its pandemic low in late March, partly because it can use its digital sales to drive revenue as people stay at home. The company said foot traffic was weak in the quarter, and even so, the company’s brand strength and e-commerce capabilities enabled the revenue beat. And many analysts had upped their estimates into the quarter. Analysts were looking for a revenue and earnings contraction, which largely didn't surfaced in the quarter.

Here were the results against Wall Street’s expectations:

  • Revenue: $10.6B v. $9.13B (actual result: -1% year-over-year)
  • North America Revenue: $4.225B v. $3.43B (-1%)
  • China Revenue: $1.78B v. $1.87B (+8%)
  • Operating Margin: 16.1% v. .9.6% (14% last year)
  • Adjusted EPS: 97 cents v. 47 cents (+11%%)

Digital sales increased 82%, not an uncommon trend for digitally-native brands in the stay-at-home environment. Nike launch several hotly anticipated products. The aggressively expanding operating margin also enabled the earnings beat.

Here’s what management said:

"Our results this quarter continue to demonstrate NIKE’s full competitive advantage, as we strengthen our position in the midst of disruption,” said CEO John Donahoe. “In this dynamic environment, no one can match our pace of launching innovative product and our Brand’s deep connection to consumers. These strengths, coupled with our digital acceleration, are unlocking NIKE’s long-term market potential.” 

Also, "NIKE is recovering faster based on accelerating brand momentum and digital growth, as well as our relentless focus on normalizing marketplace supply and demand,” said CFO Matt Friend. 

There was no guidance, though there may be on the earnings call. 

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