Nike Inc. (NKE, Financial) released its results for the third quarter of fiscal 2021 on March 18 after the market closed.
The company's earnings topped expectations due to growth in the digital business. Additionally, lower marketing expenses during sporting events boosted earnings. Revenue, however, missed expectations.
The company's shares dropped 1.1% in after-hours trading to $143.17 per share following the earnings announcement.
Key metrics
The company, which is known for its athletic shoes and apparel, posted earnings per share of 90 cents in the third quarter, up from 53 cents reported in the prior-year quarter. Revenue of $10.36 billion jumped 3% on a year-over-year basis. Analysts had predicted earnings of 76 cents per share on $11.02 billion in revenue.
During the quarter, Nike's gross margin surged to 45.6% courtesy of higher full-price product margins because of geography mix and favorable Nike digital mix. This was partially offset by lower gross margin, including Covid-19 and higher supply chain costs.
At the end of the quarter, the company had cash and cash equivalents and short-term investments totalling $12.5 billion.
Robust online sales
Online sales were up 59% in the reported quarter as the Coronavirus pandemic increased the pace of digital adoption. More customers shopped from the company's website and bought sneakers and workout apparel.
The company is attempting to bolster its online sales so that it contributes 50% of the top line. In the aim to reduce its dependence on third-part sellers, the sportswear giant said it is investing in its own SNKRS app, which targets younger customers.
The company's direct-to-consumer business surged 20% to $4 billion. Although the majority of the stores are back open, customer traffic hasn't returned to the pre-Covid or year-ago levels. Therefore, the effort to improve its digital sales is necessary and inevitable.
Executive Vice President and Chief Financial Officer Matt Friend commented the following:
"NIKE's brand momentum is as strong as ever and we are driving focused growth against our largest opportunities. We continue to see the value of a more direct, digitally-enabled strategy, fueling even greater potential for NIKE over the long term."
To further strengthen its online performance, the footwear and apparel giant said it has been opening smaller-format stores on a global basis where the customers could pick up their online orders. In addition, the company has been investing in its website, mobile apps as well as owned outlets, given that consumers are avoiding visiting department stores and shopping malls due to the Covid-19 pandemic.
By geography
Sales were down 10% to $3.56 billion in North America on account of extensive port congestion in the U.S, while sales in China were up 51% to $2.28 billion. Sales in the Europe, Middle East and Africa region dropped 4% during the quarter to $2.61 billion, while the Asia Pacific and Latin America (APLA) region witnessed sales decline of 7% to $1.3 billion.
Guidance
For fiscal year 2021, Nike is projecting revenue to grow by a low-to-mid-teens percentage on a year-over-year basis. Analysts, however, are anticipating revenue growth of 15.9%.
Disclosure: I do not hold any positions in the stocks mentioned.
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