Nike Warns Virus Store Closures To Have “Material Impact” On Q4

Nike, Inc. (NKE) warned that it expects global store closures to have a “material impact” on its retail and wholesale businesses in the fourth quarter.

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The sportswear retailer said that about 5% of its Nike-owned stores in North America are open, as well as 15% of its shops in APLA and 40% of its stores in EMEA with some operating with reduced hours. The wholesale partners in these countries have also begun to re-open stores, the company added.

“Since mid-March, the vast majority of Nike-owned and wholesale partner stores outside Greater China and South Korea have been completely closed to help slow the spread of COVID-19,” Nike said in a statement. “In light of store closures, product shipments to wholesale customers have slowed resulting in significantly lower wholesale revenue and higher inventory. We continue to expect this to have a material impact on our Nike Direct and wholesale operations in North America, EMEA and APLA in the fourth quarter.”

To offset the revenue fallout from the coronavirus-induced store closures, Nike said it has been focused on expanding its e-commerce capacities.

“We have increased our digital fulfillment capacity to meet this higher than anticipated demand which is partially offsetting declines in Nike-owned stores,” the company said.

Meanwhile, the sportswear retailer said that 100% of Nike-owned stores and over 95% of partner stores in Greater China and South Korea are now open, with some still operating with reduced hours. However, while retail traffic trends are progressing, store traffic remains below prior year levels, Nike said.

Shares in Nike have taken a hit this year plunging as much as 39% and were trading at $86.99 as of the close on Friday.

In response to the retailer’s financial update, five-star analyst Brian Nagel at Oppenheimer assigned a Buy rating on the stock with a $115 price target, reflecting 32% upside potential in the shares over the coming year.

“While coronavirus-related disruptions are apt to weigh meaningfully upon results at Nike nearer-term, we are optimistic that NKE should emerge an even stronger brand and operator as headwinds eventually abate,” Nagel wrote in a note to investors. “Our recent conversations with clients suggest to us that the market is likely to continue to largely look through current fundamental weakness and toward still compelling intermediate and longer-term sales and earnings potential for the enterprise.”

The bullish sentiment around Nike’s stock is also shared by the rest of Wall Street analysts. Out of the 22 analysts, 19 have Buys and 3 have Holds which add up to a Strong Buy consensus. The $96 average price target though is less optimistic than Nagel’s indicating a 10% potential gain. (See Nike stock analysis on TipRanks).