A Quarterly Loss Of US $790 Million, How Big Is The Global Epidemic Impact On Nike?

The global outbreak of the new crown outbreak has forced Nike to shut down 90% of its stores worldwide, and the outside world is not optimistic about its fourth quarter revenue figures. But even so, the reality is far worse than expected.

Earnings data showed that Nike's revenue in the fourth quarter of this fiscal year (March 1, 2020 to May 31st) dropped by 38% to $6 billion 310 million, far below analysts' estimates of $7 billion 380 million. An average loss of 51 cents per share, before the market is expected to be earnings per share of 10 cents. In addition, Nike recorded a net loss of $790 million in the fourth quarter, down 180% compared to the same period last year, with net profit of $989 million in the same period last year.

A quarterly loss of US $790 million, how big is the global epidemic impact on Nike?

2020 quarter revenue growth rate comparison.

In other main data, the fourth quarter gross profit decreased by 49% to 2 billion 353 million dollars, and gross margin dropped 8.2 percentage points to 37.3%, much lower than the 43.5% expected by analysts. According to Bloomberg analysis, this is the worst performance of Nike since 1998. Among them, the cancellation of orders, the product shipments dropped by nearly 50%; the outbreak of Nike in China, Vietnam and other places, the supply chain disruption, the rising cost is the main reason for this impact.

On the 25 day of closing, Nike's shares rose 1.32% to 101.40 U.S. dollars, but after the earnings announcement, Nike's share price fell 4.6% to 96.77 U.S. dollars. Bloomberg said Nike even dragged down other sports brand's stock prices, including Skech, Andrew and Foot Locker.

This performance is quite different from the three quarter (December 1st to February 29th). When other sports brands were struggling for performance, Nike's performance exceeded Wall Street's expectations. After the outbreak in late January, Nike launched online fitness programs in Greater China, joined the live force, and increased the marketing and drainage of Nike App, shifting consumers to online. According to Q3's performance, sales of digital channels in Greater China increased more than 30% in the three quarter.

In the fourth quarter, Nike also transplanted the experience of Greater China to Europe and the United States, focusing on efforts in the field of electricity providers. Digital business revenue grew 79% on the basis of exchange rate unchanged, accounting for about 30% of total revenue, which was the goal of Nike in 2023.

However, the outbreak of electricity providers in a short time can not make up for the ills of closing stores, ordering cancellations and disrupting supply chains. Such a result worries the market. Since the outbreak of the epidemic, the impact of the American apparel industry has been more serious than that of other retail businesses. The overall revenue in April and May decreased by 87% and 63% respectively. And Nike should have done something to play a more active role in reducing data.

But in fact, Nike is not prepared for the epidemic.

Most of Europe and the United States began to formally face the epidemic crisis in late March. Nike had already had the coping experience of Greater China. Although other brands also have a layout in China, the overall size and volume of Nike are not rivals for Nike. Theoretically, Nike should take the upper hand in formulating strategies.

In addition, Nike has been very active in social media in the past six months, including the launch of a new inspirational advertising film Never too far down, James dubbing, C Luo, Xiao Wei, Woods, Liu Xiang, Nadal and other sports stars will appear. Nike also responded quickly after the Floyd incident and responded positively to consumers. Nike maintained its freshness and strong brand influence through strong digital operation.

Moreover, from the group itself, Nike started to transform the supply chain two years ago, implementing the "DTC" strategy, developing App layout online and offline integration, and controlling inventory very well. Inventory has been increasing in recent years, but its inventory turnover has been maintained quarterly.

In general, as the head brand of the global sports field, Nike has many unique advantages that many competitors and retail partners do not have. However, it still can not avoid losing nearly $1 billion in the fourth quarter. It can be imagined that the sports brand with debt or reputation damage will be worse.

As the global epidemic becomes more stable and the brand has reached the stage of "fighting immunity", people with stronger immunity persist longer and recover faster.

Looking at the whole fiscal year, thanks to the advantages accumulated in the first half, Nike's overall decline is not large. In the 2020 fiscal year, Nike's annual revenue was $37 billion 400 million, down 4% from the same period last year. Gross profit was $16 billion 240 million, down 7% from the same period last year, gross profit margin decreased 1.3 percentage points to 43.4%, net profit of 2 billion 539 million dollars, and a decrease of 37% over the same period last year. At present, the cash flow of US $8 billion 300 million is enough, which is 87% higher than that of the same period last year.

The hardest part is on inventory. As of May 31st, Nike's inventory reached 7 billion 370 million. During the 5 years, Nike's annual inventory has increased by 300 million or so, but this year it is nearly 2 billion higher than the same period last year. Clearing inventory in the second half of this year is still the focus of Nike.

Nike's 90% global outlets have resumed business in June after an average 8 week break period. The fourth quarter was the fastest recovery in the Greater China region with a revenue of 1 billion 647 million US dollars. The annual revenue of Greater China is US $6 billion 680 million, which is 8% higher than that of the whole market. It increased by 11% over the same period on the basis of exchange rate unchanged, and it will maintain double-digit growth for 6 consecutive years. Pre tax profit reached $2 billion 490 million, an increase of 5% over the same period last year.

North America is also gradually recovering its vitality. According to the data provided by the company's Placer.ai, the total traffic volume of Nike stores in the United States dropped by 97.9% in April this year, but Ethan Chernovskiy, vice president of Placer.ai marketing (Ethan Chernofsky said that during the week of June 8th, the volume of passenger traffic has returned to only 40% lower than the same period last year. This is the result of the closure of several key states, namely, New York, New Jersey and California stores.

It is worth noting that in the case of Nike's decline in all kinds of revenue, Jordan brand has gone against the trend and recorded a 15% revenue growth, accounting for 11.8% of the total revenue of all products. At present, Jordan brand has been listed as one of the five specific factors for John Donaho's (John Donahoe) to consolidate the future growth. The other 4 are the strength of the brand itself, the growth trend before the recovery of the Greater China region, the digital transformation and the continuous innovation of the CEO brand.

Nike is still regarded as the sports brand that can recover quickly from the epidemic. Raymond James analyst Matthew McClintock said earlier that Nike is becoming one of the main beneficiaries of the epidemic. With the improvement of health awareness, consumers' demand for professional and innovative sportswear products is rising. Last year, Nike, which has completed the whole channel, undoubtedly can reach the target consumers faster than its competitors. Cowen analyst John Kernan also said that Nike has become the preferred sports apparel brand for consumers of all ages and income levels. Through product innovation and efficient digital layout, the brand will continue to lead the whole industry.

In general, the leading position of Nike is due to its inherent strength. If Nike fails, most sports brands will only get worse. Judging from the current recovery, Nike's throne remains stable. However, considering that the recession will cause consumers to tighten their belts, it may not be a sigh of relief in the second half of this year. According to the 2021 earnings data, Nike may still have to rely on the three or four quarter.