- Nike's CEO said the company continues to invest, despite economic uncertainty.
- Nike beat sales expectations but guided down for the new fiscal year.
- Nike's size should help it navigate a downturn, but analysts said fashion brands aren't as immune.
As an economic slowdown hits, the open question for Nike watchers is whether the world's biggest footwear company is big enough to weather the rough patch.
That's among the questions analysts are sifting through as economists continue to debate the odds of an economic contraction.
On a Monday quarterly earnings call, Nike's CEO John Donahoe touted the company's ability to keep investing despite the challenging economy.
"We continued to invest as other companies have pulled back," he said. "Our investments have made us stronger."
Wedbush Securities analyst Tom Nikic characterized the report as "noisy" given the shifting macroeconomic landscape and ongoing shipping delays, but he said that Nike remains "one of the strongest brands" in his firm's coverage given its ongoing ability to execute.
Nike has $8.6 billion in cash and equivalents on its balance sheet. Its $46.7 billion in sales in the fiscal year that ended May 31 far outpaces industry No. 2, Adidas, which in March reported 2021 sales equivalent to $23.3 billion.
"There is no denying that Nike's greatest strength is its size and scale and its ability to outmaneuver competitors in tough environments," Simeon Siegel, managing director for BMO Capital Markets, said. "Nike has always had an ability to outspend its competition. And in a world where marketing is the price of entry, having the largest budget goes very far."
But Simeon cautioned that even Nike isn't immune to slowdowns in consumer spending.
"By definition, if consumers pull back, Nike does not walk away unscathed," he said. "That's just math."
On Monday, Nike said it expects sales in the new fiscal year to increase in the low double digits. Adjusting for expected currency impacts, Goldman Sachs estimated in a research note that would translate to a 7 to 8% increase in sales, below the 10% previously expected by analysts.
Longtime industry analyst Faye Landes, who also advises companies, said Nike's scale gives it advantages, but it's mostly consistent across economic cycles, including negotiating power with athletes, factories, and retail partners. That scale doesn't address the shifting nature of style.
Landes noted recent industry history is filled with examples of upstarts — like running brands On, Hoka, and Brooks — being able to grab market share and shelf space from Nike with hot new products.
Nike may have left an opening for these upstarts with its focus on direct-to-consumer sales and cutting ties with many retailers.
"In general, retailers wake up every morning wishing that they weren't as tied to one vendor," she said. "Most of the time they can't figure out how to execute on that effectively. But they're always willing to give other vendors a chance."
But Landes said a recession could play into Nike's hands in several ways: Classic sneakers — of which Nike has many — don't go out of style. Shoppers could pass on another brand's more fashion-forward shoe for a timeless Air Force 1.
"Trendy shoes will do poorly," she said. "That probably does advantage Nike."
At the same time, as gas and rent prices go up, other shoppers could buy fewer sneakers or less expensive brands.
"It's a little bit of a push and pull," Landes said.
Landes said the smallest companies have the most to fear if the economy worsens. They have smaller buffers and venture funding could dry up.
"These ankle biters that make one style and sell online, a lot of those will be wiped out," she said.
Donahoe seems to agree.
"Strong brands get stronger," he said on Monday's earnings call. "It has never been more clear than it is today."
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