Consumer Products

How Nike Stock Returned to Pre-Pandemic Heights

If an apparel retailer can turn a temporary shutdown of its brick-and-mortar stores to an advantage, it should come as no surprise that the company is Nike (NYSE: NKE).

As with many retailers, Nike store closures were mandated as the COVID-19 pandemic took hold around the world in the early months of this year. And, like most companies, Nike saw its share price take a dive. On Jan. 21, the stock closed at $104.03. By March 23, the closing price was $62.64 — a plunge of nearly 40%.

On May 14, only 5% of Nike’s stores in North America were open. But the stock has recovered completely, closing at $104.29 on Monday. The recovery is in part due to the reopening of the company’s stores, including those in greater China, and in part due to Nike stepping into the digital future.

By contrast, the Dow Jones industrial average has yet to recover from all its pandemic losses.

The Coming ‘Digital Transformation’

Last week Cowen & Co. said the economy was “on the threshold of a decade of digital transformation.”

Cowen analyst John Kernan raised his price target for Nike to $110 from $85 while keeping his Outperform (Buy) rating going into mid-June, when the company reports its fiscal fourth quarter earnings. He said the change in price target was based “on digital strength.”

“Accelerating shift to Nike.com strengthens the connection with core consumers and provides meaningful mix benefit to unit economics and gross margin,” Kernan said, according to Barron’s.

Nike’s e-commerce business has enjoyed a compound annual growth rate of about 35% over the last five years, thanks to Nike.com and the SNKRS app, Kernan said.

The SNKRS app got lots of publicity last month with its large role in the sale of the limited-edition shoe called the Ben & Jerry’s x Nike SB “Chunky Dunky.” The shoe, developed in collaboration with the ice cream company, is designed to look like a pint of the frozen dessert. The Nike swoosh has what appear to be drips coming off of it to evoke the image of melting ice cream.

The footwear, priced at $100 a pair, sold out immediately and appeared on resale websites for as much as $2,000.

Analysts Are Optimistic

Kernan said that Nike.com and the SNKRS app had grown the apparel company’s e-commerce business by a compound annual rate of about 35% in the last five years. He also noted that online sales generally come with higher earnings before interest and taxes (EBIT) than in-store sales.

Kernan is not alone in his optimism about Nike, one of the largest apparel brands in the world. Of 36 analysts who have issued ratings and price targets for Nike over the last 12 months, 28 rate it a Buy, 5 call it a Hold and 3 recommend Sell. The average price target is $99.04, with a high of $150 and a low of $78.

Well known for its marketing expertise, Nike has a reputation for being able to tap into the current mood and culture. That has been the case as the country and the world have reacted to the killing of George Floyd by a Minneapolis police officer.

The company stood by Colin Kaepernick when his kneeling protest got him drummed out of the National Football League. And as demonstrators have spoken out against racism and police brutality, Nike has released an ad saying, “Don’t think you can’t be part of the change.”

In Tune With the Mood of the Country

The company, based in Beaverton, Oregon, has also made a commitment to spend $40 million over the next four year to support the black community in the United States on behalf of its Nike, Jordan and Converse brands.

Michael Jordan, the former NBA star whose Jordan shoes are still a mainstay for Nike, has pledged to give $100 million over the next 10 years to organizations that fight racial prejudice.

How the tumult affects the bottom line will be apparent when Nike reports its fourth quarter and fiscal year earnings on June 25. The company has a history of beating earnings estimates.

On March 24, Nike reported earnings of $0.78 per share for the third quarter, beating the consensus estimate of $0.59. The company had $10.10 billion in revenue for the quarter, while the estimate was $9.56 billion.

The consensus estimate for the fourth quarter is $0.16 earnings per share and $2.16 for the fiscal year. Estimates range from a loss of $0.48 a share to a gain of $0.57 a share.

The consensus estimate for fourth-quarter revenue is $7.8 billion and $38.6 billion for the fiscal year. The range is $4.8 billion to $9.9 billion. For annual revenue, the range is $1.61 billion to $2.55 billion.

In the early afternoon Tuesday, Nike shares were trading down about 1.2% at $103.05.