Coronavirus Costs Nike $790 Million
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Nike is proving that even giants like itself aren’t immune to the effects of the coronavirus.
The Beaverton, Ore.-based activewear group reported its most recent quarterly earnings Thursday after the bell. With stores closed most of the three-month period ending May 31, Nike Inc. lost $790 million. The company’s stock fell about 4 percent in after-hours trading as a result.
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“In a highly dynamic environment, the Nike brand continues to resonate strongly with consumers all over the world as our digital business accelerates in every market,” John Donahoe, president and chief executive officer, said in his prepared remarks. “We are uniquely positioned to grow and now is the time to build on Nike’s strengths and distinct capabilities. We are continuing to invest in our biggest opportunities, including a more connected digital marketplace, to extend our leadership and fuel long-term growth.”
Nike, like many companies, was forced to close stores in North America, Western Europe, Australia and New Zealand in mid-March to prevent the spread of the coronavirus. At the time, Nike said stores would remain closed for about two weeks.
But units didn’t start to reopen for two months. By mid-May, the company’s stores had reopened in about 15 countries, or about 40 percent of Nike-owned locations in Europe, the Middle East and Africa, 15 percent in the Asia Pacific and 5 percent in North America. Many opened with reduced operating hours. Nike Inc.’s wholesale partners in those countries had also begun to reopen stores.
As of Thursday, the company said about 90 percent of its owned stores have reopened around the world, with retail traffic improving week-over-week.
Nike also closed the majority of its stores in Asia earlier this year as a result of the virus. Nearly 100 percent of stores in Greater China have since reopened. Donahoe told analysts on the conference call that as of Thursday, China has returned to currency-neutral growth.
Even so, store closures cut into top- and bottom-line figures for the quarter. Revenues were $6.3 billion, down from $10.1 billion a year earlier. For the year, sales fell to $37.4 billion, down from $39.1 billion during the 2019 fiscal year.
There were a few bright spots during the quarter. Nike apparel continued to take share in key markets while digital sales surged 75 percent as consumers sheltered in place.
“A more digitally connected Nike is a more valuable Nike,” Matt Friend, executive vice president and chief financial officer, told analysts on a conference call.
The Netflix documentary “The Last Dance,” which chronicled Michael Jordan’s career, and the subsequent Sotheby’s auction of the basketball player’s Nike Air Jordan 1 sneakers (the pair he wore in 1985) for $560,000 also brought renewed attention to Nike’s Jordan collection.
“Sport continues to resonate with consumers as the global shift toward health and wellness continues,” Donahoe said on the call, as he talked about the “power of sport.”
But it wasn’t enough to offset losses. Nike lost $790 million during the quarter, compared with profits of $989 million a year earlier. For the full year, the company made $2.5 billion, compared with more than $4 billion a year earlier.
A number of canceled sporting events this year also cut into revenues.
To help curb costs, the retailer has reduced discretionary spending, canceled inventory receipts for coming seasons, while shifting excess inventory to its digital business. Nike also said it would continue to invest in its digital business, as well as the women’s, apparel and kids categories.
“In Greater China, this playbook has worked,” Friend said on the call. He added that Nike inventory will be “right-sized and in good position by Q2.”
“We continue to operate from a position of strength,” Friend said. “We remained focused on what we can control.”
The retailer ended the quarter with $12.5 billion in cash and equivalents and short-term investments.
Nike’s stock, which closed up 1.32 percent to $101.40 a share Thursday, is up more than 22 percent year-over-year.
