Friday, June 26, 2020

Nike Shares Dip, But Optimism Prevails

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News shaping
the markets today

     

What’s happening: Shares of Nike plummeted 4% in extended trading on Thursday after the company swung to a loss in the fourth quarter.

What happened: Nike’s latest quarter covered the three-month period from March to May, during which the Beaverton, Oregon-based company was forced to close most of its stores outside China.

With around 90% of the global sportswear giant’s stores closed for eight weeks in the quarter in North America, Europe, Asia Pacific, Africa and the Middle East, the company saw a significant decline in quarterly sales. However, management announced plans to reopen stores in various parts of the world.

How were the results: The athletic-wear giant posted a loss for the fourth quarter, with a steep decline in revenues.

  • Nike reported losses of $790 million, or 51 cents per share, for the quarter, versus a profit of $989 million, or 62 cents per share, in the same quarter last year. Analysts had projected a loss of 8 cents per share.
  • Sales declined to $6.3 billion, from $10.1 billion, also missing the consensus view of $7.3 billion.

Why it matters: Nike said the 38% decline in sales was mainly driven by store closures around the world and lower shipments, which also resulted in a rise in inventory levels.

Nike’s gross margin contracted 820 basis points to 37.2% during the quarter, mainly due to a rise in inventories and factory cancelation charges.

Nike’s online sales surged 75% during the quarter, which constitutes around 30% of total sales. The company also announced plans to continue investing in its ecommerce business.

Management also said that Nike’s retail traffic was improving, with around 90% of company-owned stores now open globally, which included approximately 85% in North America and 100% in China.

As of May 31, Nike had cash and equivalents worth $12.5 billion, up $4.1 billion versus the last year, due to proceeds from its March debt sale. The company also secured a $2 billion credit facility to maintain liquidity during the pandemic.

How shares responded: Shares of Nike, a Dow Jones index and S&P 500 component, fell 3.93% to $97.41 in after-hours trading following the release of disappointing quarterly results. The Dow Jones index gained 300 points to close at 25,745.60, while the S&P 500 rose 1.1% to 3,083.76 in yesterday’s indices trading. 

What to watch: Investors expect Nike to recover strongly in the current quarter, with most stores now open and the company witnessing strong growth in online sales. With Nike shares falling in after-hours trading, the Dow Jones index and S&P 500 are likely to remain under pressure today. Trading in US stock index futures this morning also points towards a lower open on Wall Street.

The Markets Today

     

The New Zealand dollar will be in focus today, following the release of consumer confidence data.

Context: The kiwi gained versus the US dollar this morning, but upside remained limited due to a rise in daily covid-19 cases across the globe.

Details: New Zealand’s Prime Minister Jacinda Ardern announced an injection of NZ$85 million for Queenstown to provide support to the coronavirus-hit economy.

New Zealand released data on consumer confidence, with the ANZ-Roy Morgan consumer confidence index climbing 8 points to 104.5 in June, versus a reading of 96.5 in the previous month. The index has recovered almost half the decline recorded in April when it tumbled to a 12-year low.

ANZ Chief Economist Sharon Zollner said that people are now more confident with life returning mostly to normal following the coronavirus-driven lockdown. She added, however, that despite the country being in a fortunate position compared to the world, “job security has taken a real hit.”

Coronavirus cases continued to rise globally with the US adding 37,077 new cases on Thursday. New Zealand also recorded 3 new infections yesterday.

The New Zealand dollar traded higher by 0.3% to 0.64466 versus the greenback in forex trading this morning.

What to watch: Investors await business confidence, capacity utilization and new dwellings building consents data from New Zealand next week. The US is scheduled to release some economic data today, which could provide direction to the NZD/USD forex pair.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 1.1%, 1.1% and 0.9%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

US personal income, personal spending, University of Michigan's consumer sentiment and Baker-Hughes rig count.