Retail Stock Under Pressure: Nike Inc (NYSE: NKE)

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Nike Inc (NYSE: NKE) stock fell over 1.3% in the pre-market session of March 19th, 2021 (Source: Google finance) after the company posted mixed results for the third quarter of FY 21. The company has reported the net income of $1.45 billion, compared to $0.85 billion in last year’s third quarter.

Greater China has set the pace for the geographies, growing revenue 42% on a currency-neutral basis. The company has set another record for Chinese New Year with digital demand doubling versus fiscal ’19. NIKE Digital rose 54%, driven by strong growth across the mobile app ecosystem.

Demand on the NIKE app rose 90% versus the prior year. In EMEA Q3 revenue fell 9% on a currency neutral basis and EBIT declined 7% on a reported basis. Across most countries in Western Europe, government restrictions caused an acceleration of store closures with approximately 45% of the NIKE owned stores closed over the last two months of the quarter. Assuming lockdown restrictions to begin easing by mid-April, the company expects EMEA inventory to be normalized in the first quarter of fiscal ’22. In the APLA geography, Q3 revenue fell 8% on a currency neutral basis and was temporarily affected by the transition of the business in Brazil to a strategic distributor model, partially offset by continued strength in South Korea and Pacific. And Q3 EBIT grew 5% compared to the prior year on a reported basis.

NKE in the third quarter of FY 21 has reported the adjusted earnings per share of 90 cents, beating the analysts’ estimates for the adjusted earnings per share of 76 cents. The company had reported the adjusted revenue growth of 2.6 percent to $10.4 billion in the third quarter of FY 21, missing the analysts’ estimates for revenue of $11 billion. The revenue growth is driven by 16% rise in NIKE Direct, led by strong NIKE Digital growth offset by declines in the wholesale business due to the timing of wholesale shipments caused by global supply chain challenges in North America and mandatory store closures in EMEA. Gross margin expanded 130 basis points versus the prior year resulting from higher full-price product margins due in part to geography mix and favorable NIKE Digital mix.

For Q4, in the least comparable quarter of this fiscal year, the company expects revenue growth to be of roughly 75% versus the prior year. This reflects government mandated restrictions in Europe starting to ease in April and inventory transit time slowly improving in North America. The company expects gross margin to expand up to 75 basis points versus the prior year. The company plans to resume moderate levels of share repurchase beginning in the fourth quarter.

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