Nike Posts Surprise Loss as Coronavirus Hits Wholesale Business

Revenue fell 3% in the Greater China region, while they plunged almost 47% in the North America region

Nike Inc on Thursday confirmed an unexpected quarterly loss, its first in over two years, hurt by the closures of the department and retail stores due to the coronavirus or COVID-19 lockdowns spurred due to the pandemic.

The footwear maker's shares had a fall for about four percent in after-hours trading. The wholesale business, with the help of which Nike sells merchandise to the other retailers, came to a pause amidst the health crisis. That led to a 50 percent decline in the shipments, a rise in inventory, and higher costs because of order cancelations.

As a result, gross margin fell 820 basis points in the fourth quarter, when company-owned stores and other retailers were closed for nearly eight weeks. However, Nike's investments in its digital platform over the years helped it record a 75 percent rise in online sales, as many consumers shopping for activewear and sneakers from the comfort of their homes.

Nike Confirmed Quarterly Loss due to COVID-19 Lockdowns

Nike Inc
Nike Inc Wikimedia Commons

Chief Executive Officer John Donahoe told analysts the company is now accelerating focus on its online presence and expects its overall business to reach 50% digital penetration. Online sales accounted for 30 percent of the total revenue in the quarter. "COVID-19 has shown that our strategy is sound," Donahoe said.

In China, where the virus was first detected, all of Nike's stores are now open. Revenue fell three percent in the Greater China region, while they plunged nearly 47 percent in North America. Forrester Research retail analyst Sucharita Kodali said the Nike brand is still strong and China sales number is an indicator of what to expect in western markets and the United States as things normalize.

"It's not financially distressed ... It does not have the problems of other companies in retail." Nike's net loss came in at 51 cents per share and revenue fell 38% to $6.31 billion. Wall Street was expecting a profit of 7 cents per share and revenue of $7.32 billion, according to IBES data from Refinitiv.

(With agency inputs)

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