Stock Pick of the Week

THIS WEEK’S PICK: Nike

About: Nike is an American multinational corporation that is engaged in the design, development, manufacturing, and worldwide marketing and sales of footwear, apparel, equipment, accessories, and services. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area.

Wiehan van Zyl, Momentum Securities: Portfolio Manager, shares his insights.

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Transcription:

Good day and welcome to another Momentum Securities Stock Pick of the Week. This week's stock is the international athletic apparel giant Nike. A few years ago, Nike made the big decision to shake up its operations and initiated efforts to expand its business, by shifting its focus to expand its digital channel in the hopes of connecting more closely with its customers.

Last month, management reported quarterly fiscal 2022 earnings that suggested the company was off to a rough start. The share price fell by almost 6% shortly thereafter. Most of this was, however, pandemic-related and likely short term. However, the report wasn't just negative. The report allowed management to update its investors on their ambitious, longer term transformation efforts that are still achievable.

The one positive effect the pandemic had for Nike is that it accelerated the shift to online shopping. According to Statista, e-commerce spending by all consumers as a percentage of overall spending jumped to 18% in 2020. That's up from 13.6% in 2019, which is by far the biggest increase in the last four years.

It is, however, important to note that 82% of spending is still done in-person. The trend is moving in favour of e-commerce, which will help Nike push its digital direct-to-consumer agenda. Nike digital transformation has meaningfully boosted the company's cash generating in the last decade. What's more, the company's targeting better profits in the next several years, which would result in even higher cash flow.

So, to summarise, Nike is making a push to increase direct-to-consumer online sales. That pandemic is causing major supply chain issues for Nike, but in the longer term Nike expects better revenue growth and higher profit margins.

Thanks for watching and enjoy the rest of your week.