On Friday, University of Oregon grad Sabrina Ionescu went first overall in the most-watched WNBA Draft in 16 years; she promptly signed an endorsement deal with Nike, even after her favorite NBA player Steph Curry tried to convince her to sign with Under Armour. Ionescu will rep Nike while playing for the New York Liberty in the No. 1 media market, and will likely be the WNBA’s biggest star.
On Sunday, ESPN premiered the rabidly-anticipated 10-hour documentary “The Last Dance,” about Michael Jordan and the 1997 Chicago Bulls, another vehicle for Nike buzz. Jordan and Nike are synonymous, and Nike-owned Jordan Brand is observing the five-week MJ-fest with an Instagram Live series every Monday, hosted by ESPN’s Sage Steele with revolving celebrity guests like Mark Wahlberg. That’s not to mention the sneakers: Jordan Brand dropped a new $140 Air Jordan 5 “Fire Red” shoe during the documentary premiere; it sold out instantly.
And Nike’s (NKE) Q3 earnings report on March 24 beat Wall Street expectations despite store closures in China, thanks to an e-commerce surge. (In China, weekly active users on Nike’s mobile apps rose 80% in Marcg.)
Adidas announced last week that it got approval for a 3 billion euro emergency loan from the German government’s development bank KfW due to the “severe impact on its business” from coronavirus. The yet-to-be-concluded loan includes 600 million euros from a consortium of Adidas partner banks including Bank of America, Citi, Deutsche Bank, and HSBC.
As a stipulation of the loan, Adidas suspended its shareholder dividend. Two weeks earlier, Adidas also halted its planned share buybacks. The company has moved up its Q1 earnings report to April 27 and has not yet provided outlook for 2020.
This all came after Adidas was the lone sports apparel brand among the big names to attempt to keep its U.S. stores open even after almost everyone else had closed. On March 16, CEO Kasper Rorsted sent an email to retail employees that said, “We have to keep the company going and open for business to ensure that we can pay our monthly bills and salaries to everyone... Closing down is easy, staying open in a healthy environment requires courage, persistence and focus."
Just one day later, after social media backlash from employees, Adidas reversed course and closed its U.S. stores.
Under Armour’s Q4 earnings report on Feb. 11, its first under new CEO Patrik Frisk, did not go well—and that was before coronavirus hit America. The company missed expectations on revenue, posted a net loss of $15 million for the quarter, and gave weaker-than-expected 2020 outlook. “I'm not satisfied with where we are today,” Frisk said.
This week, BMO Capital Markets upgraded Under Armour stock to neutral, but not because of any good news—it’s based on a belief that the company’s problems are now well understood and the stock has fallen appropriately. “With shares down 52% since early-February... ongoing heavy revenue declines appear well-understood,” wrote BMO analyst Simeon Siegel. He added that the UA brand is “past its peak North America sales” and “would likely not see those levels again.”
The embattled Baltimore brand has seen six consecutive quarters of sales declines in North America, its home turf. Now coronavirus closures exacerbate the brand’s preexisting problems. (In the helping hand department, at least, Under Armour, Nike, Adidas, Fanatics, New Balance, and more have all begun making masks or face shields to help hospitals.)
Under Armour’s Q1 earnings report comes on May 11, and the numbers are likely to be ugly.
There’s no question that the coronavirus shutdown has been devastating for all retail names, Nike included. But Siegel sees a roadmap for Nike to go on the offensive sooner rather than later.
“There’s very few companies that are benefiting from what is going on, but that doesn’t mean there aren’t companies that can afford to go on offense,” Siegel says. “I think every company should be running two concurrent war rooms: one should be focused on how do we make sure we survive, the other should be trying to decide how we can grab share, because there will be lingering dislocation among consumer brands. Nike will feel pain through COVID, but their size and scale should mean they can potentially go on offense to capitalize.”
Nike’s stock has also taken far less of a hit this year than the others: It’s down 12% for 2020, while Adidas is down 30%, and Under Armour is down 55%; the S&P 500 index is down around 13% for the year. Amid the past month’s market gains, Nike is up 32%, while Adidas is up 18% and Under Armour up 16%.
At the end of March, two weeks in to U.S. store closures for most brands, both Nike and Lululemon mentioned on earnings calls that they had learned lessons from store closures and re-openings in China that they would now apply to the U.S.
Siegel didn’t love that reasoning, but is still bullish on Nike’s potential to weather coronavirus: “I think it will be dangerous for Nike and for any brand to use China as a direct playbook on the depth, breadth, and timeline of the recovery here. China took a different approach, and China is going to pose a different arc of recovery than the rest of the world, and Nike is going to pose a diff arc of recovery than the rest of the world.”
Daniel Roberts is an editor-at-large at Yahoo Finance. Follow him on Twitter at @readDanwrite.
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