Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Nike’s astounding Q1 results highlight K-shaped recovery worries
Peter Garnry
Chief Investment Strategist
Summary: Nike's FY21 Q1 revenue was 16% better than estimates and the outlook for the fiscal year was also much better than expected with the company indicating that revenue growth could hit low double-digit growth. On top of this impressive development the company also surprised on gross margin against expectations by 2%-point accelerating profitability. But most importantly the company delivered 82% growth y/y in online revenue. However, the success of Nike also shows the troubling trend of bigger companies doing much better than smaller companies something economists have coined the K-shaped recovery.
Nike shares were up 3% yesterday speeding ahead of the US equity market before its FY21 Q1 results due after the market close. In extended trading shares gained another 13% as Q1 revenue was $10.6bn vs est. $9.1bn and gross margin hit 44.8% vs est. 42.9% a key metric for retailers. EPS was $0.95 up from $0.86 a year ago (10.5% growth rate).
Online revenue grew 82% on group level and triple digit in EMEA highlighting Nike’s success in moving revenue from physical stores to its e-commerce sites. The outlook for the current fiscal year was lifted to high single digit to low double-digit growth which is impressive given lackluster backdrop in many economies due to lockdowns. Nike is clearly benefitting from its strong brand in converting offline revenue to online, but also the growing trend during the COVID-19 pandemic to do physical exercise at home. In addition, the company has successfully navigated the political currents around the Black Lives Matter movement turning Nike into a favoured Millennial brand.
Nike is a superstar but also shows K-shape recovery
The success story of Nike in 2020 highlights a troubling trend which has been coined the K-shaped recovery. Large companies have better access to financing, better information systems, more diversified revenue streams and stronger brands. This enables a higher degree of flexibility but more importantly the opportunity to move revenue from the physical world to online. In a recent speech Fed Chairman Jerome Powell also talked about the need for more fiscal stimulus to small businesses as they are suffering much more risking a divergent economy with more power concentrated at big companies.
If yesterday’s share gains in after-market trading hold up today Nike’s market capitalization will surpass $200bn for the first time catching up with LVMH which is still the most valuable company in the global textiles, apparel & luxury goods industry. Before yesterday’s gains Nike shares were already up 16% compared to a 5% decline for LVMH. Only shares of Lululemon Athletica, Li Ning, Pandora and Deckers Outdoor have done better. But Nike’s business does not come cheap for investors. Before the 13% gain in extended trading the shares were valued at 29.7x on 12-month EV/EBITDA only surpassed by Lululemon and Tapestry. The table below also show the big differences in performance this year among companies in this industry.
| Name | Exchange | Market Cap (USD, mn.) | Return YTD (%) | Return 5YR (%) | 12M fwd. EV/EBITDA |
| LVMH Moet Hennessy Louis Vuitton SE | EN Paris | 230,665 | -5.0 | 191.2 | 16.5 |
| NIKE Inc | New York | 182,304 | 16.2 | 113.3 | 29.7 |
| Hermes International | EN Paris | 89,072 | 9.1 | 138.9 | 28.8 |
| Kering SA | EN Paris | 83,864 | -1.4 | 358.5 | 15.7 |
| Christian Dior SE | EN Paris | 73,829 | -22.9 | 151.4 | |
| adidas AG | Xetra | 63,891 | -5.9 | 314.8 | 19.8 |
| EssilorLuxottica SA | EN Paris | 54,281 | -21.8 | 5.0 | 14.1 |
| Lululemon Athletica Inc | NASDAQ GS | 40,866 | 35.4 | 473.1 | 34.3 |
| Cie Financiere Richemont SA | SIX Swiss Ex | 38,272 | -18.1 | -6.4 | 13.7 |
| VF Corp | New York | 26,995 | -28.9 | 17.7 | 23.7 |
| ANTA Sports Products Ltd | Hong Kong | 26,806 | 11.1 | 341.4 | 15.5 |
| Shenzhou International Group Holdings Ltd | Hong Kong | 24,439 | 12.6 | 239.3 | 20.8 |
| Puma SE | Xetra | 13,290 | 10.3 | 341.6 | 18.8 |
| Swatch Group AG/The | SIX Swiss Ex | 11,719 | -19.8 | -35.2 | 10.1 |
| Li Ning Co Ltd | Hong Kong | 11,041 | 48.3 | 868.6 | 23.1 |
| Moncler SpA | BrsaItaliana | 10,422 | -13.9 | 128.8 | 15.1 |
| PRADA SpA | Hong Kong | 10,318 | -3.0 | 2.9 | 14.8 |
| Burberry Group PLC | London | 7,890 | -30.3 | 28.2 | 12.0 |
| Pandora A/S | Copenhagen | 7,317 | 67.6 | -25.9 | 9.0 |
| Deckers Outdoor Corp | New York | 5,987 | 26.5 | 253.1 | 13.8 |
| Columbia Sportswear Co | NASDAQ GS | 5,907 | -10.6 | 49.9 | 14.3 |
| Ralph Lauren Corp | New York | 5,481 | -35.4 | -24.3 | 10.9 |
| Hanesbrands Inc | New York | 5,445 | 9.2 | -39.0 | 9.6 |
| Levi Strauss & Co | New York | 4,902 | -35.3 | 12.1 | |
| Skechers USA Inc | New York | 4,795 | -29.7 | -35.6 | 11.5 |
| Under Armour Inc | New York | 4,617 | -49.4 | -79.3 | 32.6 |
| Tapestry Inc | New York | 4,591 | -37.4 | -31.8 | 7.8 |
| PVH Corp | New York | 4,576 | -38.7 | -42.3 | 14.0 |
| Gildan Activewear Inc | Toronto | 3,945 | -30.3 | -29.1 | 14.1 |
| Carter's Inc | New York | 3,865 | -18.4 | -1.3 | 11.0 |
Source: Bloomberg and Saxo Group
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