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Why Nike Stock Fell 7% Today

By Jeremy Bowman – Jun 11, 2020 at 7:36PM

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Shares of the sportswear giant pulled back with the broader market selloff.

What happened

Nike (NKE 3.79%) stock took a dive today along with the broader market as fears of a second wave of coronavirus infections and negative comments from Federal Reserve Chairman Jerome Powell about the economic recovery gripped investors. As a result, the S&P 500 finished down 5.9%, while Nike lost 6.8%.

So what

Nike was one of a number of consumer-facing brands to fall sharply today as the consumer discretionary sector is highly sensitive to progress in the economic recovery and a potential resurgence in COVID-19 infections. A number of its peers also tumbled today including Under ArmourAdidas, and Foot Locker.

The Nike Live store in LA

Image source: Nike.

The COVID-19 pandemic has forced Nike and its retail partners to close many of its stores around the world, though some of them have since reopened. While the swoosh company is unquestionably taking a financial hit from the pandemic, the stock came within a breath of setting an all-time high just a few days ago, a sign that investors were looking past the pandemic's impact on the sportswear giant.

Today's news may have changed that, however. 

In its most recent update on May 14, Nike said that its stores in China and South Korea had reopened, and it was encouraged by the recovery in those markets. Management also touted the digital connections it was making with customers during the crisis, and said it was seeing higher-than-expected demand on the digital side of the business. 

That report helped kick off a rally in the stock and reinforced the company's strategic shift to the direct-to-consumer channel, which includes digital storefronts like its apps and websites.

Now what

While Nike may be widening its competitive advantage during the crisis, fears of another wave of infections seemed to be a reality check for investors as the company is still highly dependent on brick-and-mortar retail partners like Foot Locker, which have mostly been closed during the crisis.

The company will give investors another update when it reports fourth-quarter earnings on June 25. Analysts expect the quarter to reflect the brunt of the impact of the novel coronavirus and see revenue falling 23.3% to $7.81 billion, and earnings per share declining form $0.62 to $0.15.

For Nike to endure the peak of the pandemic and still turn a profit would be a clear sign of its strength, but many of its peers won't be so fortunate.

Jeremy Bowman owns shares of Nike. The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$88.64 (3.79%) $3.24
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$7.40 (5.26%) $0.37
adidas AG Stock Quote
adidas AG
ADDYY
$62.79 (7.39%) $4.32
Foot Locker, Inc. Stock Quote
Foot Locker, Inc.
FL
$32.27 (1.35%) $0.43
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UA
$6.59 (3.94%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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