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NIKE (NKE) Expands in Metaverse Space With RTFKT Buyout

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NIKE, Inc. (NKE - Free Report) is acquiring a virtual sneaker and collectibles start-up, RTFKT. RTKFT boasts one-of-a-kind virtual products and experiences created by leveraging the latest in-game engines, NFTs, blockchain authentication and augmented reality. The move is part of the company’s digital transformation plan. The buyout is expected to expand NIKE’s base in the metaverse, with additional digital capabilities. However, the terms of the deal remain undisclosed.

Prior to this, NIKE launched LeBron 19 styles in Fortnite in a bid to expand in the digital game space. The company also launched Nikeland in collaboration with Roblox (RBLX - Free Report) for customers to play games, connect and dress in virtual apparel via digital showroom, including Air Force 1 and Nike Blazer. Roblox’s Nikeland is available on Roblox.com for free.

Roblox has created quite a stir with its video game platform, wherein users can hang out with others, play mini-games and invite others to play. Users can also monetize their creations in the gaming platform by charging access fees from other players.

What Else Should You Know?

NIKE has been benefiting from the permanent shift in consumer behaviors to digital, thanks to its efficient digital ecosystem that comprises its online site as well as commercial and activity apps. In first-quarter fiscal 2022, the company continued to witness robust revenue growth at the NIKE brand’s digital business despite the reopening of stores. Digital revenues for the NIKE brand were up 29% year over year on a reported basis.

Even as stores reopen, the company continues to witness strong digital trends. Management expects revenues in fiscal 2022 and beyond to benefit from robust digital growth.

The return of sports activity and solid back-to-school sales led to incredible demand for NIKE products for the fifth consecutive season. Revenues in North America advanced 15% on both a reported and currency-neutral basis, driven by double-digit growth in the Performance business in the Fall season, Olympics fervor, the WNBA season and the NBA finals.

In EMEA, revenues rose 14% on a reported basis and 8% on a currency-neutral basis on the back of the EURO cup this summer, with NIKE players scoring higher goals than all other brands combined. The company’s Mercurial boots accounted for more than half of these goals, resulting in higher demand for the Mercurial boot and replica jerseys during the tournament.

Owing to these factors, NIKE witnessed top-line growth across all channels in the fiscal first quarter, led by growth at NIKE Direct. The NIKE Direct business benefited from steady normalization of the owned retail business and continued momentum in the digital business.

Revenues at owned stores improved 24%, above the pre-pandemic levels recorded in first-quarter fiscal 2020. Sales at NIKE-owned stores in North America accelerated more than 50% due to the return of traffic to physical stores and enhanced experiences.

However, the company is reeling under ongoing supply-chain challenges and factory closures due to COVID-19, which resulted in product shortages. The company’s Wholesale business reflected the impacts of supply constraints. It noted that the transit times in North America and Europe have further deteriorated in the fiscal first quarter due to port and rail congestions, and labor shortages.

Consequently, management lowered its fiscal 2022 guidance to reflect the impacts of 10-weeks of lost production in Vietnam since mid-July and expectations of the elevated transit times to remain consistent with the current levels. For fiscal 2022, the company anticipates revenue growth in the mid-single digits. Lowered sales are expected to result solely from supply-chain congestions.

The company expects revenue growth to be flat to down in the low-single digits, particularly in second-quarter fiscal 2022, owing to the impacts of the lost production due to factory closures and delayed delivery times for the holiday and spring seasons. It expects the lost weeks of production and the longer transit times to result in short-term inventory shortages in the market over the next few quarters.

NIKE is also witnessing higher ocean freight costs. The company expects higher air freight rates to continue hurting the gross margin throughout fiscal 2022. The gross margin is estimated to expand 125 bps for fiscal 2022 due to increased transportation, logistics and airfreight costs to move inventory. For the fiscal second quarter, the company expects the gross margin to expand at a lower rate than fiscal 2022 due to higher planned airfreight investments for the holiday season.

As a result, shares of this Zacks Rank #3 (Hold) company have gained 5.8% in the past three months compared with the industry’s growth of 6.3%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Here’s How Other Stocks Fared

We have highlighted some better-ranked stocks from the broader Consumer Discretionary space, namely Steven Madden (SHOO - Free Report) and Gildan Activewear (GIL - Free Report) .

Gildan Activewear currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 85%, on average. Shares of GIL have gained 48.3% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Gildan’s current financial-year sales and earnings per share suggests growth of 4.5% and 24.4%, respectively, from the year-ago period’s reported numbers. The Zacks Consensus Estimate for GIL’s 2021 earnings is pegged at $2.38 per share, which has increased 12.3% in the past 30 days.

Steven Madden presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 41.9%, on average. Shares of SHOO have rallied 37.4% year to date.

The Zacks Consensus Estimate for Steven Madden’s current financial-year sales and earnings suggests growth of 50% and 170.4% from the year-ago period’s reported numbers, respectively. The Zacks Consensus Estimate for SHOO’s 2021 earnings is pegged at $2.35 per share, which has increased 11.9% in the past 30 days.

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