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Nike’s latest financial report: “Destocking” is also Nike’s problem



In the early morning of March 25, Nike (NKE) announced its quarterly financial report for the period ending February 29 after the market closed. It was also the first listed consumer goods company in the US sto…

In the early morning of March 25, Nike (NKE) announced its quarterly financial report for the period ending February 29 after the market closed. It was also the first listed consumer goods company in the US stock market to disclose its performance after the outbreak of the new crown epidemic.

United States The start and end periods of a listed company’s fiscal year can be different from the beginning and end of the natural calendar. Nike is one of them. Its fiscal year ends on May 31 of each year. Therefore, what is announced this time is the performance of the third fiscal quarter of fiscal year 2020. .

The reason for such customization is not only to facilitate your own financial budgeting, tax payment and financial reporting, but also related to the business cycles of different industries. Most schools start in September, and at the same time, the United States Most sports events also start their league cycles in the fall.

Nike’s 20Q3 revenue was US$10.1 billion, a year-on-year increase of 5.1%, much higher than the expected US$9.5 billion, and diluted earnings per share was It was US$0.53, compared with US$0.68 in the same period last year, a year-on-year decrease of 15%, which was not much different from the expected US$0.52.

Due to the COVID-19 outbreak in China in February, Nike promptly closed stores, and Greater China is an important growth engine for Nike. Therefore, Wall Street analysts lowered their expectations. Conservative, the market expectations range is very large, and the reference value is not large.

The higher-than-expected revenue mainly comes from EMEA (Europe, Africa and the Middle East), Asia Pacific and Latin America, of which the growth rate of EMEA reaches 13%. The main driving force is still the electronics business, with growth increasing by 36% year-on-year.

The transition to online has begun to usher in good rewards. The Converse brand has returned to double-digit growth in all regions, and the growth in pre-tax profits has reached 22%.

22 consecutive kills in Greater China interrupted by the epidemic

Nike In the past five years, its performance has far exceeded that of similar consumer companies, and its stock price has risen higher than the S&P 500 Index. In addition to the stimulation of the rising cycle of consumer goods, the transformation of Nike’s online operations and the improvement of brand operations are crucial factors.

Greater China has witnessed its explosion. As of last quarter, Nike has achieved 21 consecutive quarters of double-digit growth in Greater China, and this is not just a business opportunity brought by “shoe speculation”, but also the development of women’s sports products, multi-line online channel operations, and excellent brand operations. , cultivating the sports fan economy are the keys to both fame and fortune.

However, the epidemic will end the record. With half of the stores closed, revenue in Greater China this quarter was US$1.51 billion, a year-on-year decrease 5.2%, of which footwear products fell by 3.6% year-on-year.

However, due to Double 12 and the online sale of AJ products, the digital business in Greater China increased by 30% and continues to grow strongly, and the weekly active users of Nike App increased by 80% , indicating that young people have a high level of recognition of the Nike brand.

At the end of February, most retail stores began to return online, and retail traffic also recovered at double digits. Nike executives said on the call that Greater China is expected to resume growth this fall.

On the other hand, although North America, Europe, Latin America and other places did not show decline in this quarter’s financial reports, the global outbreak of the epidemic after March will inevitably have a greater impact. The Chinese market still has more developed online sales, while Europe and the United States rely heavily on offline sales, so the impact of store closings will be even greater.

With inventory accumulation in three quarters, big promotions are no longer a dream

In Previously, the focus of Nike’s performance was to improve operational efficiency (such as channel online) to increase profitability. Because of the epidemic, the top priority now has become destocking.

In the past few quarters and two quarters, Nike has been accumulating inventory for product diversification. Yoga, women’s sports products, etc. are the focus of competition between Nike and other sports brands. By 2019 By the end of November, inventories had reached $6.2 billion.

Benefiting from the growth of online business, inventory pressure in this quarter has been eased, with inventory falling to US$5.81 billion. However, this is also related to the promotion of online channels. This quarter’s Marketing and administrative expenses increased by 6.2% year-on-year.

But no matter what, the fact that leaks in the house happen to rain all night still exists. Due to the mild winter, there is a lot of backlog of products for the winter of 19/20.

The epidemic was thought to have only affected inventory in China, and could be absorbed through promotions in the next three quarters. However, this global outbreak has not only basically scrapped the spring of 2020, but the postponement of the Olympic Games has also put great pressure on the summer of 2020.

In other words, Nike’s warehouse may have a backlog of inventory for three quarters since the winter of 2019.

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More importantly, this problem is not only faced by Nike, but also by strong rivals Adidas, Andersen Mar, segmented brands such as Lululemon are all facing this.

Manufacturers have so many products in their backlog. If you don’t promote them, others will. If market promotions are carried out at the same time, the market competition can be imagined to be fierce. In the Chinese market, Li Ning, Anta, etc. are already competing with Nike for favor among young people.

Now many early-stage AJ styles have begun price reductions, and shoe fans will usher in even bigger “AJ sales” in the future.

The pressure for cash flow to return is high, and dividend repurchase cannot have both.

A major support for the company’s stock price is repurchase. The total share capital as of the end of February 2020 has dropped from 1.71 billion five years ago to 1.56 billion. The annual dividend distribution is 1.2 billion, and the repurchase is even more generous. It will be spent in fiscal year 19 $3.5 billion. However, all this must be based on good cash flow. That’s why Nike has to work harder to clear inventory.

Nowadays, the increase in accounts receivable and inventory has put pressure on cash, and cash and equivalents have also dropped to the lowest level in the past five years, which will affect future dividends and returns. Purchasing brings greater pressure. From this perspective, Nike also has great incentives to convert inventory into cash.

Since the beginning of the year, Nike’s stock has fallen by 28%, and it has also increased its dividend rate. Compared with companies that have higher debt due to acquisitions or have a higher proportion of intangible assets on their balance sheets, Nike’s solid brand advantages are better reflected in a turbulent environment, and have become prey in the eyes of many institutional investors.

Of course, the uncertainty of the epidemic is still difficult to say, and the company does not provide financial guidance for the fourth quarter. If Nike can take this opportunity to better develop and improve its online channels, its profit margins are expected to rise to a higher level after the epidemic passes. </p

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