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NIKE Cheers on Strong Digital Sales Show in Q1, Shares Up

Consumer inclination toward online shopping amid the ongoing coronavirus pandemic has certainly been a boon for retailers and NIKE Inc. NKE is no exception to this trend.  Well strong digital sales were quite the highlight when this renowned sports and apparels company reported first-quarter fiscal 2021 results on Sep 22. In fact, it delivered better-than-expected top- and bottom-line figures in the reported quarter. Robust first-quarter results prompted management to update guidance for fiscal 2021.

Shares of NIKE rallied 12.9% in the after-hours trading session on Sep 22, while it gained 8.8% in yesterday’s session. Moreover, shares of this Zacks Rank #3 (Hold) company have gained 27% in the past three months compared with the industry’s 15.5% growth.

Strong Digital Sales Steals the Show

During the first quarter, digital sales for the NIKE Brand were up 82% on a reported basis and 83% on a currency-neutral basis. Digital sales for the brand were mainly aided by double-digit growth across Greater China and APLA along with triple-digit growth in North America and EMEA. Notably, digital sales for the brand contributed about 30% to total revenues in the reported quarter.

Additionally, the company’s consumer engagement and membership metrics are depicting strong momentum. During the first quarter, demand for NIKE commercial app increased two folds, with triple-digit growth in monthly active users. Management highlighted that digital sales continued to prosper even as the stores reopened. This demonstrates the strength of its brands and investments made in the past several years to improve digital consumer experiences.

With consumers becoming increasingly digitally grounded, NIKE is optimistic regarding its e-commerce operations and is investing toward further enhancing capabilities therein. It is focusing on boosting scale, by widening assortments available online as well as enhancing distribution centre capacities. As part of the Consumer Direct Acceleration, the company’s immediate priorities include improving personalization and creating a consistent end-to-end technology platform. It is also striving to better harness consumer data to understand online shopping preferences and meet demand more efficiently. It is also working toward accelerating digital throughput and reducing order cycle times by up to 50%.

Outlook Stirs Positivity

Despite the uncertainty regarding the impacts of the coronavirus outbreak, the company updated its guidance for fiscal 2021. It expects revenue growth in high-single digits to low-double digits in fiscal 2021, as compared to its earlier anticipation of revenues to remain flat or rise year on year. The company expects to witness significant revenue growth in the second half of the year versus the prior year.

For fiscal 2021, it expects gross margin to be flat year over year, including 40 basis points (bps) of foreign exchange headwinds. Gross margin outlook is based on the ability to return to normalized inventory levels by the end of the fiscal second quarter. In the second half of fiscal 2021, the company is likely to experience sequential improvement in full-price sales.

Wrapping Up

We note that the company’s physical store traffic recovery has been slow, mainly due to the COVID-19 related safety and social distancing measures. Moreover, the company continues to be cautious regarding market volatilities and uncertainties emerging out of the ongoing pandemic. Nevertheless, it expects to continue witnessing growth in the digital realm. Equipped with an efficient digital ecosystem, which comprises of its online site as well as commercial and activity apps, the company is expected to continue soaring in terms of online sales.

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