Nike's Stock Plunge Is a Wake-Up Call For the Sneaker Giant
Nike's stock took a nosedive on Friday following the release of the company's latest earnings report. Although Nike reaffirmed its full fiscal sales outlook, there were several red flags that investors couldn't ignore. With competition from other brands heating up, it appears that Nike may finally be feeling the pressure.
Nike's Stock Plunges Following Earnings Call
The first red flag was Nike's revenue growth, which came in at just 4%. While that might not seem like a big deal, it marks a significant slowdown from previous quarters. Nike's revenue growth has averaged around 10% over the past five years, so this quarter's results were definitely a disappointment.
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Another cause for concern was Nike's gross margin, which declined 1.6 percentage points to 43.3%. This is the sixth straight quarter that Nike's gross margin has declined, and it suggests that the company is losing pricing power. In addition, Nike's inventory levels rose 7% year-over-year, which could lead to markdowns and further margin pressure down the road.
The final red flag was Nike's guidance for the current quarter. The company forecasted earnings-per-share of between $0.50 and $0.55, which was well below analysts' expectations of $0.61 per share. In addition, Nike said that currency headwinds would reduce its revenue growth by about 2 percentage points in the current quarter.
Nike's stock took a hit on Friday following the company's latest earnings call. While Nike reaffirmed its full fiscal sales outlook, there were several red flags that caused investors to lose confidence in the company. In this blog post, we'll take a look at what happened and why Nike's stock took such a big hit.
What Happened?
Nike reported its fourth quarter and full year results for fiscal 2020 on Thursday evening. For the quarter, Nike posted revenue of $10.36 billion, which was up 4% from the same period last year. However, analysts were expecting revenue of $10.57 billion for the quarter. Nike also announced that it expects revenue for fiscal 2021 to be flat to up slightly on a currency-neutral basis.
The company's earnings per share came in at 62 cents, which was below analyst expectations of 68 cents per share. Nike also announced that it will be taking a $790 million charge related to the coronavirus pandemic in its upcoming fiscal first quarter.
Following the release of Nike's quarterly results, the company's stock plunged around 10% in pre-market trading on Friday morning. At one point, the stock was down as much as 12%. As of 9:45 am ET, Nike's ticker page was the most active on the Yahoo Finance platform.
Why Did Nike's Stock Plunge?
There are several reasons why Nike's stock took such a big hit following the release of its quarterly results. First and foremost, the company's EPS came in below analyst expectations. Additionally, Nike announced that it expects revenue for fiscal 2021 to be flat to up slightly, which suggests that the company does not expect a strong rebound from the coronavirus pandemic.
Furthermore, Nike's earnings call appears to have rubbed some investors the wrong way. On the call, CEO John Donahoe said that he expects "the environment will remain highly dynamic and challenging" due to the pandemic. He also said that while digital sales were strong in Q4, they are not enough to offset declines in brick-and-mortar sales.
Lastly, while confirming its full fiscal sales outlook (excluding the impact of foreign exchange), Nike also announced that it is withdrawing its guidance for gross margins and EPS for fiscal 2021 due to uncertainty surrounding the coronavirus pandemic.
Investors sent Nike's stock plunging on Friday after a series of disappointing announcements from the company. While reaffirming its full-year sales outlook, Nike warned that gross margins and EPS would be impacted by the coronavirus pandemic and withdrew its guidance for those metrics. Additionally, CEO John Donahoe struck a more downbeat tone on the earnings call than investors would have liked to hear, saying that he expects "the environment will remain highly dynamic and challenging." With so many uncertainties surrounding Nike at this time, it's no wonder why investors are spooked.
Nike's disappointing earnings report was a wake-up call for the sneaker giant. With competition heating up and margins under pressure, Nike will need to work hard to maintain its place at the top.
