Nike (NYSE: NKE) stock is in the limelight again after reporting stellar results in its fiscal second-quarter earnings release. The company blew past expectations on Wall Street for revenue and earnings per share (EPS). The stock — already up over 35% this year before the earnings release — shot up another 5% after the retail apparel company reported results.
However, that’s not the only reason why so many investors are talking about Nike’s stock. Let’s take a closer look at a couple of developments that are putting the company in the limelight.
Nike reports stellar second-quarter results. Image source: Getty Images.
Better than expected quarterly results
In an early December press release, Nike announced it would be increasing its dividend by 12%, a clear signal to investors that management felt confident in the company’s prospects. Specifically, near-term uncertainty caused by the coronavirus pandemic should not derail its long-term plans.
And when second-quarter earnings were released on Dec. 18, it was apparent to everyone why management felt good enough to increase its dividend. Nike reported revenue of $11.2 billion and EPS of $0.78, a 9% and 11% increase, respectively, from the prior year quarter. Meanwhile, on average, Wall Street analysts had forecast that the company would report revenue of $10.55 billion and EPS of $0.61.
Impressively, Nike’s digital sales in the second-quarter grew 84% year over year. That’s great news for its shareholders because digital sales are more profitable than those made through wholesale channels like department stores.
Image source: Getty Images.
A brightened outlook
Additionally, Nike reported that inventories were down 2% from the same point a year ago. Investors were curiously monitoring the figure because, at the end of the previous quarter, inventories were up by 15%. If inventories were too high going into the holiday season, Nike might have needed to offer larger discounts and more promotions to get that inventory moving before they become more stale. This decrease, from the previous quarter indeed shows that demand was robust and management had the situation under control going into the holiday quarter.
Indeed, referring to Nike’s fiscal 2021 outlook, CFO Matthew Friend said in the company’s Q2 conference call,
We are increasing our full-year outlook for revenue and now expect low-teens growth versus the prior year. Our gross margin outlook is also improving, with a stronger-than-planned return to normalized inventory levels and lower-than-expected markdown activity across our portfolio.
That’s a great sign for investors who were fearing the probability of decreasing revenue at lower profit margins.
Nike is also committing to opening more stores to accelerate growth. It announced plans to open 30 stores in the second half of fiscal 2021 and even more in 2022. Nike is planning on using these physical locations to provide a more digitally connected experience for customers.
Overall, Nike appears to be firing on all cylinders. It’s no wonder that so many market participants can’t stop talking about this consumer discretionary stock. It has recovered from the worst of the pandemic and now that digital is becoming a bigger share of overall sales, Nike looks well-positioned to increase profit margins as well.
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Parkev Tatevosian has no position in any of the stocks mentioned. The Fintech Zoom owns shares of and recommends Nike. The Fintech Zoom has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.