Nike: the goddess of DTC

Nike: the goddess of DTC
There's a lot to like about Nike's Q3 2022 results.
Paul Allison, CFA
March 22, 2022

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.

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