[Overseas Stocks Spotlight] "Nike Turns to Operating Loss Due to COVID-19 Impact Including Store Closures"

[Asia Economy Reporter Eunmo Koo] Nike (NIKE·NKE US) posted an operating loss in the fourth quarter of fiscal year 2020 (March-May 2020) as sales plummeted due to store closures and the impact of the novel coronavirus disease (COVID-19).

On the 25th (U.S. local time), Nike announced its fiscal year 2020 Q4 results, which fell short of market expectations. Revenue was $6.31 billion, down 38.0% year-on-year, and operating loss turned negative, recording $750 million.

On the 29th, Woochang Jung, a researcher at Mirae Asset Daewoo, stated in a report, “Given recent quarterly results and guidance announcements from competitors like lululemon, Nike’s performance was expected to be below consensus, so the overall market shock from the Q4 results is not significant.”

Overall, like other major consumer goods companies, Nike’s online digital sales (rising to about 30% of total sales) increased by the high 70% range year-on-year, partially offsetting offline sales declines (around -80%) due to movement restrictions caused by COVID-19.

The management noted that in North America, including the U.S., online digital sales increased by 80% compared to Q4 of the previous year, and in June, digital sales growth exceeded 100%. Q4 sales in China also grew 1% year-on-year, supported by online digital sales growth.

Meanwhile, due to COVID-19, Nike’s inventory increased by more than 30% compared to Q4 of last year. To reduce inventory burden, the company plans to cut fall season orders by 30% from the original plan and conduct more aggressive promotions.

Due to uncertainties related to COVID-19, management did not provide detailed guidance for fiscal year 2021 (June 2020?May 2021). However, they forecast that sales in the first half of fiscal 2021 will still decline year-on-year, with a full recovery phase beginning in the second half, and annual sales for fiscal 2021 could be similar to or higher than fiscal 2020, presenting a somewhat conservative stance compared to market consensus.

It is assessed that much of the profit recovery post-COVID-19 is already reflected in the current valuation. Researcher Jung explained, “Nike’s long-term growth story remains valid, but with recent stock price increases, the stock has already recovered to pre-COVID-19 levels. Currently, the stock trades at 37.9 times and 30.0 times the 2021 and 2022 Bloomberg consensus price-to-earnings ratios (PER), respectively, indicating that much of the post-COVID-19 profit recovery is priced in, creating short-term valuation pressure.”