Nike (NKE  ) posted a rare earnings miss, and its shares were trading 4% lower after-hours. Despite the strong stock market and massive amounts of fiscal and monetary stimulus, Nike's report demonstrates that the coronavirus and economic uncertainty are affecting discretionary spending.

However, a more positive spin is that Nike's weakness was due to the stores being shut down and the company's reliance on physical retail as its primary sales channel. Under this interpretation, Nike's weakness is temporary and provides a compelling buy the dip opportunity.

Inside the Numbers

Nike reported a net loss of $0.51 per share in its fiscal fourth-quarter which equates to $790 million. A year ago, it generated a profit of $989 million. Revenue at $6.31 billion was down 38% from 2019's $10.18 billion. The global figures reflected the coronavirus' path as Chinese sales were down only 3%, and North American sales were down 46%. Of course, the bulk of the most aggressive shutdowns were from late-March to early-May in North America, while the shutdowns were being lifted in China by late-March.

Going forward, most states are reopening but states that reopened the earliest are seeing the biggest surge in case counts, while states in the Northeast that have been cautious are seeing success in controlling the outbreak. So, more shutdowns may be necessary which would prevent Nike's North American sales rebounding like sales figures in China.

Another impediment for Nike is that many sports and recreation were put on hold which affected demand. Footwear sales were 42% lower, apparel was 38% down, and athletic equipment was 53% lower.

Digital Growth

The one bright spot was the 70% increase in digital sales. Nike's long-term strategy is to be less reliant on its retail partners and increase its direct-to-consumer sales online. The coronavirus certainly accelerated this process, as it probably hopes to retain online buyers. By selling directly, Nike can reap bigger margins, provide a more unique buying experience, and increase the lifetime value of a customer as opposed to selling through retail channels where margins are less and Nike has less control over many aspects.

For its online channel, the coronavirus is a blessing and accelerated its timeline towards digital sales becoming its primary source of revenue. This quarter, digital sales account for 30% of revenue which was Nike's target for 2023. The company is planning to open 150 mini-stores that will primarily function as locations where customers can pick up online orders.

Nevertheless, Nike swinging from a nearly $1 billion profit last year to a half-billion-dollar loss this year despite a 70% gain in digital sales, shows that in the near-term, retail sales in physical stores makes up the bulk of its business. It will be interesting to see how the numerous retail stores permanently closing affect Nike's bottom-line. In its conference call, it said that wholesale shipments were down 50%.