Even after a steep fall from last year's high, Nike shares are well above pre-pandemic levels.
A look under the hood of last night's Q3 FY2022 earnings report shows us why the swoosh appears to be in tip-top shape. Quite the feat given it’s currently navigating store closures, strained global supply chains, a Chinese western brand buying strike, and rampant cost inflation.
That’s a lot to deal with, but luckily the company has been in training for these difficult times.
Nike delivered 8% sales growth for the quarter just ended, which is decent enough given the circumstances, but it’s the makeup of that number that’s important.
Online sales grew by nearly 22%, which stacks up against a whopping 60% growth for the same quarter last year.
Digital has been part of Nike’s plans for some time. It’s one part of a two-pronged strategy targeting direct to consumer (DTC) sales, through online and company-owned stores.
Nike hopes to have the majority of its business coming from DTC by 2025. And on top of impressive online growth, sales from company-owned stores were up 15% in the quarter, taking DTC comfortably above 40% of the total pie.
Importantly, selling directly to consumers doesn’t require a retailer like Footlocker or JD Sports sitting in the middle taking a slice of the profits. So despite all the current upward pressures on costs, Nike was able to grow profit margins in the quarter, another swoosh- sized (try saying that fast) tick in the box.
Some of the challenges the company is wrestling with will persist for some time yet, though.
China is an important market and sales there continue to struggle. Also, while the company’s Vietnam factories are back in full swing, another Covid variant could be lurking in the shadows waiting to halt production once again.
It's unlikely that other cost pressures and supply chain constraints will ease overnight either.
But it's a long-distance race for Nike management. They have invested heavily in the right areas and current results are testament to impressive long-term thinking.
And shareholders seem to agree. Nike shares have traded at a premium to the market for more than 10 years. And a rich valuation for a business like Nike tends to be an indication that investors are in it for the long haul, confident in the company’s future.
So while the stock price appears to be discounting a bright outlook already, last night’s results will cue a round of high fiving and whooping among Nike owners for now.
Sign up to Honey by Freetrade, our market newsletter.
See the most popular investments with a breakdown of the most traded stocks and most popular ETFs on Freetrade. Follow the IPO calendar and keep an eye on exciting new investment opportunities.
This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.
When you invest, your capital is at risk. The value of your portfolio, and any income you receive, can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.
Eligibility to invest into an ISA and the value of tax savings depends on personal circumstances and all tax rules may change.
Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).
From 11 April, the FX fee charged when trading stocks priced in USD or EUR will change to 0.99% on our Basic plan, 0.59% on our Standard plan, and 0.39% on our Plus plan.
From May, monthly subscription fees will change to £5.99 per month for our Standard plan and £11.99 per month for our Plus plan.
Everything in Basic, plus:
Everything in Standard, plus: