Analyst Note| David Swartz |
Nike exceeded our sales and earnings expectations for its (November-ended) fiscal 2021 second quarter despite challenges from the pandemic. As in the prior quarter, Nike overcame anemic sales growth in North America (up 1% versus our estimate of flat) through constant-currency global e-commerce growth of about 80% and outperformance in greater China and Europe, the Middle East, and Africa. In greater China, where the virus has been better contained than elsewhere, Nike recorded 19% constant-currency growth, 4 percentage points better than our forecast. In EMEA, Nike had constant-currency sales growth of 12%, double our 6% estimate, as a nearly 100% e-commerce increase offset store restrictions and closures. We attribute Nike’s ability to navigate the pandemic well to its large owned and third-party e-commerce (now more than 30% of sales), strong demand for athletic gear during the virus, and the global strength of its brand, the source of our wide moat rating. We expect to raise our fair value estimate of $107 per share by a mid-single-digit percentage but rate Nike's shares, which have soared to all-time highs, as overvalued.