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Nike regaining momentum despite adversity

In the midst of the inflation the US economy is experiencing and the problems in China caused by Covid, the profits of the multinational sportswear company, Nike, exceed Wall Street’s expectations. The company confirmed that despite the downturns in the global economy, demand for its sneakers and apparel remained strong in the fourth fiscal quarter. 

According to a survey of analysts by Refinitiv, Nike posted a net profit of $1.44 billion, or 90 cents per share, in the three months ended May 31. However, its sales fell to $12.23 billion, down from $12.34 billion a year earlier.

The challenges

Despite beating expectations, Nike stock was down about 3%. This is because Nike says it still has to face some challenges such as rising transportation costs and thus the need for longer shipping times.

The sportswear company has a complex outlook, as prices of basic necessities rise due to inflation, consumers will be forced to ignore Nike items, or opt for another cheaper brand.

Similarly, supply chain issues can mean significant losses due to the possibility of lost merchandise and wrong or late deliveries. Increased transportation costs have affected the company. As a result of the pandemic, Nike pays about five times the rate it used to pay before the pandemic to ship its products from Asia to the United States, according to the CFO, Matthew Friend.

Nike’s overall sales have fallen. In North America, its largest market, sales fell 5% to $5.11 billion in the fourth quarter. In China, meanwhile, the impact was even greater due to forced closures in the country because of the pandemic. There, sales fell by 19% to $1.56 billion, compared to the $1.93 billion in the previous period.

Matthew Friend says that the declines in the figures have to do with temporary factors, but not with the public’s loyalty to Nike.

Is there any hope for the future?

Friend stated that the company is “optimistic” about the new fiscal year. Nike is undergoing a renewal process, whereby it is changing its strategy. The company intends to sell more merchandise directly to buyers and cut back on the number of products sold by wholesale partners.

Compared with its figures for the previous year, its direct sales grew by 7% to $4.8 billion in the quarter. On the other hand, Nike’s wholesale business figures fell, and sales were down by 7% to $6.8 billion.

“Inventory is flowing back into our largest geographies,” Nike’s CFO stated. “We continue to closely monitor consumer behavior, and we see no signs of pullback at this time, so we continue to execute the strategy and the plan we have, which is working,” he added.

In a very volatile market, Nike stock is down by 34% so far this year. However, being a giant in its industry, owning a multifaceted brand, and positive customer experience, are going to be key factors driving Nike out of this downturn and leading the company into long-term growth.

These features carry a lot of weight for a bunch of Wall Street analysts, who give a “Moderate Buy” rating on Nike stock. The average price for NKE is $132.05, with an upside potential of 29.2%.

The takeaway

It appears that Nike’s brand value will prevail after so many setbacks. Despite the dips its stock has had over the last few days, Wall Street seems to stay optimistic about its future. It is very likely that the sportswear manufacturer’s outlook will change sooner or later.

Do you think it will take long for them to recover? Would you invest in Nike stock?

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