The past 12 months have seen a near 30% rise in the Nike (NYSE: NKE) share price. The global sportswear giant, which needs little introduction, has had a solid bounce-back from the pandemic – with its stock having returned triple-digits since the outbreak.
So, with 2022 on the horizon, will Nike be able to carry on with its impressive form, and should I be buying its shares? Let’s take a look.
Nike Direct
One aspect of Nike that excites me is the growth it has witnessed in its direct-to-consumer sales. In its latest trading update, these sales were up 28%. Sales of this nature increase profit margins for Nike as it allows the firm to keep the cut that would go otherwise to other retailers. It also allows the business to control its pricing more closely. More than 65% of Nike’s sales came in at full price for Q1, exceeding its own expectations and showing this in action. This is also exemplified through its gross margin — which sat at 46.5% for Q1.
Another strength I see in Nike is the growth in its digital sales. At a time when many shoppers are transitioning to purchasing goods online, Nike has seemingly been able to make the most of this. Its digital sales rose 29% for Q1, showing the potential it possesses. Where it stands out from competitors is through its unique forms of digital interaction with consumers. Being a user of the SNKRS app myself, I’m aware of the exciting features it offers such as exclusive releases and events. As digital shopping continues to grow, Nike should reap the benefits from this.
Nike concerns
Yet one concern for me is supply chain issues. This is a global headache impacting many businesses (as seen when I reviewed Tesla stock earlier this month), but it does pose an especially big threat to Nike. The firm’s production lines have taken a hit due to local lockdowns in factories in Vietnam and Indonesia. Further issues such as shipping container shortages have impacted the firm. It announced this week that it had cancelled store orders in one of its outlets until summer next year due to supply issues — showing the potential severity of the issue. Should this continue for too long, I’d expect to see this negatively reflected in the Nike share price.
Will I buy?
The growth in its digital sales only shows a slither of the potential Nike has to offer. Its recovery from the pandemic can be seen as a testament to the firm’s strengths. But the supply chain issues remain. Although the situation seems to be easing in some areas, a spike in cases could plunge Nike back into trouble and dent its share price. While I like the look of Nike shares, I will be holding off until the situation around its supply chains is clearer.
Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
