Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Is Everyone Talking About Nike Stock

By Parkev Tatevosian - Dec 29, 2020 at 8:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The athletic apparel company is grabbing the attention of Wall Street analysts and retail investors alike.

Nike ( NKE -0.17% ) stock is in the limelight again after reporting stellar results in its fiscal second-quarter earnings release. The company blew past expectations on Wall Street for revenue and earnings per share (EPS). The stock -- already up over 35% this year before the earnings release -- shot up another 5% after the retail apparel company reported results.

However, that's not the only reason why so many investors are talking about Nike's stock. Let's take a closer look at a couple of developments that are putting the company in the limelight. 

A woman exercising on a stationary bike.

Nike reports stellar second-quarter results. Image source: Getty Images.

Better than expected quarterly results

In an early December press release, Nike announced it would be increasing its dividend by 12%, a clear signal to investors that management felt confident in the company's prospects. Specifically, near-term uncertainty caused by the coronavirus pandemic should not derail its long-term plans.

And when second-quarter earnings were released on Dec. 18, it was apparent to everyone why management felt good enough to increase its dividend. Nike reported revenue of $11.2 billion and EPS of $0.78, a 9% and 11% increase, respectively, from the prior year quarter. Meanwhile, on average, Wall Street analysts had forecast that the company would report revenue of $10.55 billion and EPS of $0.61.

Impressively, Nike's digital sales in the second-quarter grew 84% year over year. That's great news for its shareholders because digital sales are more profitable than those made through wholesale channels like department stores.

 

A man drawing an upward sloping line labeled performance.

Image source: Getty Images.

A brightened outlook  

Additionally, Nike reported that inventories were down 2% from the same point a year ago. Investors were curiously monitoring the figure because, at the end of the previous quarter, inventories were up by 15%. If inventories were too high going into the holiday season, Nike might have needed to offer larger discounts and more promotions to get that inventory moving before they become more stale. This decrease, from the previous quarter indeed shows that demand was robust and management had the situation under control going into the holiday quarter.

Indeed, referring to Nike's fiscal 2021 outlook, CFO Matthew Friend said in the company's Q2 conference call,

We are increasing our full-year outlook for revenue and now expect low-teens growth versus the prior year. Our gross margin outlook is also improving, with a stronger-than-planned return to normalized inventory levels and lower-than-expected markdown activity across our portfolio.

That's a great sign for investors who were fearing the probability of decreasing revenue at lower profit margins.

Nike is also committing to opening more stores to accelerate growth. It announced plans to open 30 stores in the second half of fiscal 2021 and even more in 2022. Nike is planning on using these physical locations to provide a more digitally connected experience for customers.

Overall, Nike appears to be firing on all cylinders. It's no wonder that so many market participants can't stop talking about this consumer discretionary stock. It has recovered from the worst of the pandemic and now that digital is becoming a bigger share of overall sales, Nike looks well-positioned to increase profit margins as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$169.57 (-0.17%) $0.29

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
673%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.