Nike (NYSE: NKE) reported better than expected earnings and sales in the second quarter primarily due to strong results from online channels, the Jordan Brand, and Converse line of shoes. Earnings came in at $1.12 billion or $0.70 per share against expectations of $0.58 per share. This represents a nearly 35% gain from last year's second-quarter net income of $847 million.
The gain in earnings is impressive given that revenue increased 10% to $10.33 billion from $9.37 billion in last year's second quarter, indicating a healthy amount of margin growth. One promising development in the report is a 38% increase in online sales with Black Friday sales increasing by 70%. This comes about as Nike stopped selling its products directly on Amazon (Nasdaq: AMZN) due to concerns about third-party sellers and counterfeit products.
Digital Sales Booming
For most companies, this would have a severe impact on its financials at least in the near-term. However, Nike is big enough and has the brand cachet to drive traffic to its own website and doesn't need Amazon eating away at its margins. Its divorce from Amazon is a signal that Nike is focusing on making sure its customer experience is consistent with the premium, higher-status image it seeks to cultivate.
Some more steps in this direction include SNKRS app where customers can see, give feedback, and pre-buy new and upcoming products. Nike has a suite of apps to increase engagement with customers and deliver value in different ways that are translating into increased sales and customer loyalty. In a sense, Nike is imitating Apple's (Nasdaq: AAPL) strategy of creating its own ecosystem that becomes intertwined in people's lives.
Stock Price Perspective
Nike's stock was down slightly following the report as the "whisper numbers" were significantly higher than analyst estimates. However, the stock was clearly anticipating a positive number as it was higher by 8% going into earnings. Given Nike's growth rate, juicy margins, and bullish economic conditions, there's no reason that it won't continue moving higher in 2020.
In fact, it's longer-term, monthly chart shows that the stock is actually breaking out of a one-year consolidation pattern from September 2018 to September 2019. These types of "bases" allow for sentiment to reset and shares to move from weak hands to strong hands, providing fuel for this rally phase in the stock. Traders should keep looking to buy dips in Nike.