May 13, 2021

The secret of Nike to surprise Wall Street | Economy

The secret of Nike to surprise Wall Street | Economy

LeBron James bulldozing on the basketball court with the Lakers; Eliud Kipchoge crushing the marathon record; Simone Biles dominating in gymnastics or Kylian Mbappé elevated to planetary soccer star. The four athletes triumph wearing the swoosh, the famous Nike logo. And as presumed by its CEO, Mark Parker, the achievements of these athletes create a "halo" effect that is reflected in the results of what is considered to be the largest marketing machine in the world.

There was a lot of anxiety to know what was going to be the performance of Nike in the days prior to the presentation of the accounts, because the brand concentrates all the fears that agitated the markets in the final stretch of 2018 due to commercial tensions, the moderation of economic growth and the weakness of the sportswear segment in the male category. The firm of Beaverton (Oregon) scared the ghosts with a stroke.

The results corresponded to the second quarter of your fiscal year. In that period, it invoiced 9,370 million dollars, 10% more than a year ago or 14% less the effect of the exchange rate. Sales in North America grew 9% in the year, while international sales grew by 20%. In China they even rose by 31% if currency fluctuations are excluded. Not only did they exceed the forecasts by geography, also by category.

In summary: Nike earned 850 million in the quarter, an improvement of 10%. "Every success makes us hungry for more," the multinational executive told investors. But the business of sportswear is very dynamic and the expectations of consumers are increasing, to which is added economic volatility. Parker's formula is to revolutionize the way he offers his products, with tactics such as limited releases and lotteries of products to create exclusivity. Although perhaps not everything is due to its business merit. This Thursday the European Commission announced an investigation to determine if Nike obtained illegal tax benefits in the Netherlands to pay less taxes in Europe.

In the second quarter billed 9,370 million and won 850 million, 10% more annual

Double digit

On the day of the results, however, there were no shadows. The executive spoke of the innovations that are introducing in the field of footwear, or the transformation in the supply chain to be able to deliver a personalized product to the client. And all this using LeBron, Kipchoge, Byles and Mbappé as icons of a lifestyle that transcends sport.

A double-digit growth in this so turbulent weather impressed Wall Street, who has just bid farewell to his worst year since the financial crisis. The company's shares appreciated 18% last year compared to a 6% drop in the Dow Jones. And that despite the fact that in the last three months Nike lost 10% of the value. Only Microsoft, Pfizer and Merck had a stronger performance.

The valuation of the brand, of 95,000 million, is higher than that of its rivals

The enthusiasm caused shares to climb 9% the day they presented results, before Christmas. Randal Konik, an analyst at Jefferies, sent a note to his clients that day describing the quarter as "perfect". Beyond exceeding expectations in terms of revenues and profits, it is as if Nike were immune to commercial tensions between the US and China, which is forcing other multinationals to assume costs.

"Nike is getting clear and will continue to do so in 2019," they anticipate from SW Retail Advisors. That is allowing her to recover the market share that she gave to Adidas, which literally crushed her during the last years. Moreover, while the competition resorted to discounts to reduce inventory, Nike did not.

Parker made a serious commitment to digitization a year ago, something that Parker cited a hundred times during the conference with analysts. The results reflect that this policy begins to reap the rewards. Sales on the web represent 15% of global revenues. They grew 41% when compared to the results of a year ago. The goal is to reach 30% in 2023.

Digitalization does not concentrate only on online sales, for which they have partnerships with Alibaba, Amazon, Instagram, Google or WeChat. It has also been taken to the physical store, something that differentiates them from the competition. Last November, for example, they launched a new system in their store in New York that avoids going through cash.

As for the markets, China is the promised land. Brian Nagel, analyst at Oppenheimer, is not surprised by his progression in the country for his "great job" to connect with consumers. This allows it to cushion the consequences of the political differences between Washington and Beijing, which for the company have had "zero impact". Proof of this is that, coinciding with the Day of the Singles, processed five million units of shoes in five days. Stifel anticipates that this progression, both in revenues and in the profit margin, will be maintained in 2020.

The Nike stock reached a record price of $ 85.5 on September 21 and this week it moved at $ 73. That is why JPMorgan Chase analysts believe that the current value is attractive to enter the company. Pivotal Research, which a few months ago did not hide its concern with the position of the brand, also sees it as a good buying opportunity because the results show that it is "performing better than its main competitors", in reference to Adidas and Under Armor. But the valuation of Nike, with a capitalization close to 95,000 million, is still higher than that of its peers at these levels.

"Whether you like Nike or not," the strategists at Sand Hill Global conclude, "the numbers reflect that the company is gaining traction because it knew how to take advantage of consumers, both in the US and in China." But in the next two quarters, he adds, it will really be seen if the global situation is as painful as the sentiment in the market reflects. The results published by other multinationals will help to understand if Nike is an exception or took the fears too far.


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