Written by Andria Cheng
Nike shares surged 11% after hours on Tuesday after the sneaker giant and Dow component offered hope that consumers haven’t totally lost their spending muscle amid the escalating global coronavirus crisis.
The company reported better-than-expected sales in the fiscal third quarter that ended February 29. Shares jumped in after-hours trading, adding to a 15% gain during regular trading on Tuesday.
It was welcome news for Nike investors, who have watched the stock lose 40% of its value this year as the coronavirus outbreak that originated in China forced it to shut three quarters of its stores there. China is a key growth market for the company and last quarter sales there fell 4%, marking a sharp departure from 22 straight quarters of double-digit gains.
With the outbreak spreading globally, the Beaverton, Oregon-based company has closed all of its owned stores in North America, Europe and other regions outside of China, Japan and South Korea since March 16.
As U.S. malls, restaurants and other industries seek government bailouts amid the shuttering of stores and the threat of a looming global recession, Nike’s results are one good sign for the state of consumer spending, which in the U.S. represents about 70% of the economy.
Nike CFO Andy Campion said that online spending in North America has surged by triple digits in the past week and is approaching levels they typically see during the holidays. In another sign of demand, some new products the company introduced online in the past two weeks in their home market were sold at full price, he said.
Nike said it’s engaging with consumers via its mobile apps and encouraging “virtual participation” as consumers stay at home and practice social distancing. “We are seeing strong digital growth in the U.S.,” Campion said. “While stores close, we will be digital with activity apps.”
Campion added that Nike has doubled its capacity to distribute online orders in the last few days. The company said it’s working with partners including the European online retailer Zalando and sharing information as online demand is expected to pick up even more — a trend that’s also seen in increased food and grocery delivery orders — despite the fact they won’t be able to make up for the shuttered brick-and-mortar business.
Nike also said that what it has observed in China and some other Asian markets offers a hopeful template about what could come in the U.S. and Europe. Nike CEO John Donahoe said store visits in China had picked up each week since most of its stores there reopened after a “containment” phase of five to six weeks,with many consumers wearing masks. A “triple-digit” increase in online sales while stores were closed continued to pick up its pace even after stores reopened. A similar pattern was observed in Japan and Korea, he said.
“Consumer demand for those products remains strong,” he said. “Global culture of health and wellness remains unabated. People all over the world are making a habit of making sports a daily habit.”
The coronavirus outbreak may well be expected to deal a blow to cash-strapped retailers and even some malls, but Nike’s results show consumers will still open their wallets for discretionary purchases they want.
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