Topline: Nike, already the world’s dominant athletic footwear and apparel brand, hit an all-time high share price on Wednesday, boosted by a successful digital transformation, high demand for athletic products and product innovation that is faster than its competitors.
- Nike surged 5.5% after smashing expectations on its first-quarter earnings report yesterday, soaring past its previous record high of $90 per share. The stock opened at an all-time high Wednesday and is now up almost 18% for the year.
- The company cited new product innovation and investments in e-commerce for helping boost results, as it continues to maintain a leading position in the athleisure and street fashion trend.
- Furthermore, “Nike’s digital investments continue to bear fruit,” as Jefferies analyst Randal Konik says. Digital sales spiked 42% from a year earlier, as the company has increasingly been investing in apps and online selling platforms—which further helped drive overall sales growth. As a result, Nike has increasingly adopted a direct-to-consumer strategy for its business, discarding the traditional method of selling products through retailers.
- The latest earnings show that despite trade tensions between the U.S. and China, the company wasn’t hit as hard by tariffs as some of its peers. Global sales grew 7% from a year earlier to $10.7 billion (above the expected $10.4 billion, according to FactSet). That growth was largely driven by revenue in China, which surged 22% to $1.7 billion.
- Wall Street had a field day with Nike’s first-quarter earnings report, which widely surpassed even the loftiest expectations. Many analysts rushed to upgrade the stock’s price target and rating: Over 70% recommend it as a “buy,” according to Bloomberg data.
- While Adidas is still the company’s biggest rival globally, it “has lost market share to Nike in some areas,” Morningstar analyst David Swartz told Forbes. He also pegs ANTA, the largest Chinese sportswear company, as a legitimate competitor in China, though its market share still lags slightly behind Nike and Adidas. He identifies the region as a huge growth market and highlights the 2020 Olympics as another big event where Nike will do well: “That should give them a big boost in Asia.”
Crucial quote: In a call with analysts Tuesday evening, CEO Mark Parker reiterated that demand for athletic product remained high worldwide. He highlighted women’s apparel, which also grew at a double-digit rate last quarter, as another high priority growth area for the company. “The opportunities ahead are as bright as I’ve ever seen them,” Parker said.
What to watch for: While Nike’s performance and revenue growth was stellar, the valuation of its stock price is somewhat expensive relative to its peers, according to Konik. Nike currently trades at a price-to-earnings ratio of 32.5—compared to Adidas, at 29.5, for instance. The company will need to maintain its rapid pace of growth in the next few years to justify its valuation, but that may well be possible, as Nike has momentum in its favor. They “crushed it” in the latest quarter, according to Konik, who puts the stock’s price target at $97 thanks to the “ongoing power of its brand.”
I am a New York—based reporter for Forbes, covering breaking news—with a focus on financial topics. Previously, I’ve reported at Money Magazine, The Villager NYC, and The East Hampton Star. I graduated from the University of St Andrews in 2018, majoring in International Relations and Modern History. Follow me on Twitter @skleb1234 or email me at firstname.lastname@example.org