19 March 2021

Nike Shares Slide Following Mixed Q3 Results

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What’s happening: Shares of Nike fell in extended trading on Thursday, after the sneaker and fashion giant reported mixed results for the third quarter.

What happened: Recent shipping issues, along with a downturn at brick-and-mortar stores amid pandemic-related constraints, resulted in Nike’s quarterly sales missing estimates. However, the company still surpassed the earnings expectations.

Meanwhile, Nike’s arch-rival Adidas announced an apparel-line partnership with Peloton.

How were the results: The sportswear giant reported growth in both sales and earnings for the three months ended February 28.

  • Revenues grew 3% to $10.4 billion, but missed the consensus estimate of $11.02 billion.
  • Earnings climbed 71% to $1.4 billion, or 90 cents per share, significantly exceeding the market view of 76 cents per share.

Why it matters: Container freight traffic at US ports has slowed in the past few months due to rising covid-19 infections among dockworkers and the resulting increased safety restrictions to prevent the further spread of the virus. Nike reported an 11% decline in North American revenues due to the shortage of containers and congestion at the US ports, which delayed the company’s inventory by over three weeks.

Around 45% of company-owned stores remained closed in January and February in the EMEA (Europe, the Middle East and Africa) region amid recently heightened pandemic restrictions. Nike’s brick-and-mortar retail sales in the region contracted by 45% in the third quarter. Investors were reassured that about 65% of stores in the region are now either fully open or operating at lowered hours. However, Nike’s rival Adidas said last week that around 95% of its stores are now open.

Offsetting other sales declines, sales in Greater China surged by a whopping 42% on a currency-neutral basis. While the company sells via various retail partners, Nike has been focusing on direct sales, which grew 20% to $4 billion in the quarter. Digital sales jumped 59%.

“While we are optimistic about the pace of the vaccine distribution and how this will enable safe reopening of the global economy in the near future, the effects of the virus continue to create short-term volatility in our business performance,” Nike’s CFO Matthew Friend said.

Markets were also disappointed by the company’s latest guidance. Nike said it expects full-year revenue to grow in "low-to-mid-teens," compared to analyst expectations of 15.9% growth.

Adidas also announced it had entered into a partnership with Peloton to develop an exclusive apparel line, with the merchandise likely to hit the market on March 25.

How shares responded: Nike’s shares fell 3.9% to $137.62 in after-hours trading, following the release of quarterly results. The stock had added merely 1% year to date.

What to watch: Investors will monitor the easing of congestion at US ports, which might help Nike boost its sales in the coming months. Markets will also keep an eye on the reopening of stores in the EMEA region.

The Markets Today

     

European stocks will be in focus today, after closing mostly higher on Thursday.

Context: European stocks recorded gains on Thursday, with investors monitoring US Treasury yields and the progress of covid-19 vaccinations in EU.

Details: After conducting a safety review of AstraZeneca’s covid-19 vaccine, the EMA (European Medicines Agency) concluded that it was safe for distributing, dispelling fears of the vaccine causing blood clots. Various European nations have suspended the use of AstraZeneca’s covid-19 vaccine, despite the WHO (World Health Organization) saying there is no evidence of a link between the vaccine and blood clots.

Investor sentiment was slightly lifted after the Bank of England maintained its interest rates and bond buying program, following the US Federal Reserve’s cautious tone on future rate hikes. London’s FTSE 100 rose 0.25% on Thursday, after several companies, including Hugo Boss, Rolls-Royce, Morrisons and Generali, reported their quarterly earnings.

The pan-European Stoxx 600 rose around 0.4% amid a volatile trading session on Thursday. Shares of basic resources were among the top performers, rising around 2%.

German DAX 30 was the standout performer, surging to a new high. The index added 1.23% to close the day at 14,775.52. The French 40 rose 0.13%, while the Spain’s IBEX 35 gained 0.29%.

What to watch: Markets await economic data on Germany’s producer prices, Italy’s construction output and current account today.

Rising covid-19 cases remain one of the top concerns for markets, with total global infections surging to 121.7 million. Investors will also monitor any pick-up in the vaccination program in Europe following the EMA’s review on AstraZeneca’s vaccine.

Other Markets: US indices closed lower on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.46%, 1.48% and 3.13%, respectively.

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What else to watch today

     

UK’s public sector net borrowing, Russia's unemployment rate, real wages, retail sales, gross domestic product and Bank of Russia’s interest rate decision, India’s foreign exchange reserves, Mexico’s consumer spending, Canada’s retail sales as well as the US Baker Hughes crude oil rigs.

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