During the company’s third-quarter earnings conference call, CEO John Donahoe revealed that the sportswear giant’s business underwent four phases to get back on track following widespread store closures and supply chain disruptions in China, where the virus originated in December: First, the containment of the outbreak; then the recovery period when stores reopen; normalization; and ultimately, a return to growth.
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“We can extract learning and insight from each of our markets,” said Donahoe.
Tracking data from China, Japan and South Korea, where Nike has since reopened most of the stores that had been forced to close to prevent the spread of the illness, the Beaverton, Ore.-based company found “fairly consistent” patterns: Containment took five to six weeks, and although its locations were shuttered, e-commerce growth remained strong during that time, augmented by Nike’s connection with consumers through its apps and digital platforms.
“Now, all three markets are [going] through what we’re calling recovery, that is, retail’s opening back up [and] consumers are back on the streets,” Donahoe said. “As we move into normalization, retail traffic is coming back.”
In the third quarter, Nike noted that revenues in Greater China were down 4% on a currency-neutral basis, breaking a streak of 22 consecutive quarters of double-digit improvement. Roughly 75% of Nike-owned and partner stores in the region had either closed or significantly reduced operating hours in February as the Chinese government attempted to stem the number of COVID-19 cases in the country.
Although brick-and-mortar sales saw either declining foot traffic or none at all, Nike reported that e-commerce in Greater China during that period surged more than 30%. And today, nearly 80% of Nike outposts in China are open.
In the U.S., where the government and leading health officials are focused on “flattening the curve” related to the coronavirus outbreak, Donahoe said “we’re earlier in the cycle.”
In an attempt to help curb the illness’ spread, Nike became one of the first major global chains to announce the temporary closure of its stores in the United States. Its stores in Canada, Australia, New Zealand and Western Europe are also shuttered through Friday.
While it wasn’t able to connect with shoppers in person, the company said it leveraged its omnichannel presence to keep its brand top of mind for consumers. It has remained active on social media, releasing this week a marketing campaign that encouraged Americans to stay at their homes to upend the virus’ spread and offering free workouts on its Nike Training Club Premium subscription app, where U.S.-based customers can engage in studio-style workouts and progressive training programs where they can get expert tips from Nike’s master trainers.
“None of us can predict perfectly how long the containment phase is going to take in the U.S. and Europe,” Donahoe admitted. “But what we can know is, while stores are closed, we’re going to be there digitally — with activity apps and commerce. And when the stores start reopening, we’re going to be leveraging our unique strengths with strong, compelling product; a digital connection with consumers that is unmatched; and the seamless digital-physical experiences of both Nike Direct and our partners.”
For the period ended Feb. 29, Nike logged earnings per share of 53 cents on profits that dropped 23% to $847 million, compared with analysts’ bets of 59 cents per share.
Revenues, on the other hand, improved 5% on a reported basis (or 7% on a currency-neutral basis) to $10.1 billion, advancing past Wall Street’s predictions of $9.8 billion. Digital sales were also up 36% over the previous year. Nike attributed the performance to solid growth across North America as well as the Asia Pacific-Latin America and Europe-Middle-East-Africa regions, offset by the impact of the pandemic on its business in Greater China.
Coronavirus Disruption Puts a Dent in Nike Earnings, But Investors Are Still Bullish on the Brand