Nike’s astounding Q1 results highlight K-shaped recovery worries

Equities 5 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  Nike's FY21 Q1 revenue was 16% better than estimates and the outlook for the fiscal year was also much better than expected with the company indicating that revenue growth could hit low double-digit growth. On top of this impressive development the company also surprised on gross margin against expectations by 2%-point accelerating profitability. But most importantly the company delivered 82% growth y/y in online revenue. However, the success of Nike also shows the troubling trend of bigger companies doing much better than smaller companies something economists have coined the K-shaped recovery.


Nike shares were up 3% yesterday speeding ahead of the US equity market before its FY21 Q1 results due after the market close. In extended trading shares gained another 13% as Q1 revenue was $10.6bn vs est. $9.1bn and gross margin hit 44.8% vs est. 42.9% a key metric for retailers. EPS was $0.95 up from $0.86 a year ago (10.5% growth rate).

Online revenue grew 82% on group level and triple digit in EMEA highlighting Nike’s success in moving revenue from physical stores to its e-commerce sites. The outlook for the current fiscal year was lifted to high single digit to low double-digit growth which is impressive given lackluster backdrop in many economies due to lockdowns. Nike is clearly benefitting from its strong brand in converting offline revenue to online, but also the growing trend during the COVID-19 pandemic to do physical exercise at home. In addition, the company has successfully navigated the political currents around the Black Lives Matter movement turning Nike into a favoured Millennial brand.

Nike is a superstar but also shows K-shape recovery

The success story of Nike in 2020 highlights a troubling trend which has been coined the K-shaped recovery. Large companies have better access to financing, better information systems, more diversified revenue streams and stronger brands. This enables a higher degree of flexibility but more importantly the opportunity to move revenue from the physical world to online. In a recent speech Fed Chairman Jerome Powell also talked about the need for more fiscal stimulus to small businesses as they are suffering much more risking a divergent economy with more power concentrated at big companies.

If yesterday’s share gains in after-market trading hold up today Nike’s market capitalization will surpass $200bn for the first time catching up with LVMH which is still the most valuable company in the global textiles, apparel & luxury goods industry. Before yesterday’s gains Nike shares were already up 16% compared to a 5% decline for LVMH. Only shares of Lululemon Athletica, Li Ning, Pandora and Deckers Outdoor have done better. But Nike’s business does not come cheap for investors. Before the 13% gain in extended trading the shares were valued at 29.7x on 12-month EV/EBITDA only surpassed by Lululemon and Tapestry. The table below also show the big differences in performance this year among companies in this industry.

NameExchangeMarket Cap (USD, mn.)Return YTD (%)Return 5YR (%)12M fwd. EV/EBITDA
LVMH Moet Hennessy Louis Vuitton SEEN Paris230,665-5.0191.216.5
NIKE IncNew York182,30416.2113.329.7
Hermes InternationalEN Paris89,0729.1138.928.8
Kering SAEN Paris83,864-1.4358.515.7
Christian Dior SEEN Paris73,829-22.9151.4
adidas AGXetra63,891-5.9314.819.8
EssilorLuxottica SAEN Paris54,281-21.85.014.1
Lululemon Athletica IncNASDAQ GS40,86635.4473.134.3
Cie Financiere Richemont SASIX Swiss Ex38,272-18.1-6.413.7
VF CorpNew York26,995-28.917.723.7
ANTA Sports Products LtdHong Kong26,80611.1341.415.5
Shenzhou International Group Holdings LtdHong Kong24,43912.6239.320.8
Puma SEXetra13,29010.3341.618.8
Swatch Group AG/TheSIX Swiss Ex11,719-19.8-35.210.1
Li Ning Co LtdHong Kong11,04148.3868.623.1
Moncler SpABrsaItaliana10,422-13.9128.815.1
PRADA SpAHong Kong10,318-3.02.914.8
Burberry Group PLCLondon7,890-30.328.212.0
Pandora A/SCopenhagen7,31767.6-25.99.0
Deckers Outdoor CorpNew York5,98726.5253.113.8
Columbia Sportswear CoNASDAQ GS5,907-10.649.914.3
Ralph Lauren CorpNew York5,481-35.4-24.310.9
Hanesbrands IncNew York5,4459.2-39.09.6
Levi Strauss & CoNew York4,902-35.312.1
Skechers USA IncNew York4,795-29.7-35.611.5
Under Armour IncNew York4,617-49.4-79.332.6
Tapestry IncNew York4,591-37.4-31.87.8
PVH CorpNew York4,576-38.7-42.314.0
Gildan Activewear IncToronto3,945-30.3-29.114.1
Carter's IncNew York3,865-18.4-1.311.0

Source: Bloomberg and Saxo Group

 

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.