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What's Next for Nike (NKE) Stock in Fiscal 2020 Amid Digital Expansion?

Benjamin Rains

 

Welcome to the latest episode of the Full-Court Finance podcast from Zacks Investment Research where Associate Stock Strategist Ben Rains breakdown Nike’s NKE fourth-quarter fiscal 2019 financial results and takes a look at what’s next for the sportswear powerhouse as it expands its digital business.

Nike’s adjusted Q4 2019 earnings slipped and fell short of expectations, which rarely happens at the Beaverton, Oregon-based company. The firm said its profits were hurt by increased spending on new technology and a higher tax rate than a year ago. This spending included adding RFID tags into products as part of an ongoing effort to streamline and speed up its business in an IoT-focused age.

At the top of the income statement, Nike’s revenue jumped 4% and topped estimates. Nike’s sales growth was negatively impacted by currency headwinds, brought about by a strong U.S. dollar. The company also saw its North American business, which accounts for roughly 40% of total sales, continue to grow.

Meanwhile, Nike’s revenue in Greater China climbed by double-digits for the 20th consecutive quarter. China is expected to continue to play a vital growth role at Nike for years to come. Investors should also note that Nike executives said the current U.S-China trade war hasn’t hurt business much, and they don’t expect it to going forward.

The sportswear firm’s digital sales soared 35% in fiscal 2019. Looking ahead, Nike’s digital and direct-to-consumer expansion is projected to drive growth. CEO Mark Parker reiterated expectations that digital transactions will make up roughly 30% of Nike’s business by 2023. NikePlus, its various digital apps and platforms, along with its expansion across social platforms such as Instagram FB will play huge roles in this projected growth. Along with its DTC push, Nike has maintained strategic partnerships with the likes of Foot Locker FL, Dick’s Sporting Goods DKS, and Nordstrom JWN.

Long-term, Nike seems poised to remain a strong company that is likely to see its stock price climb. Nike has been able to grow amid increased competition from Adidas AG ADDYY, Lululemon LULU, Puma, Gap-GPS owned athleisure brands, and other smaller players through its constant brand building and combination of sports and fashion.

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