Better Buy: Nike vs. Tanger Outlets

2020 was not the year for retail. But things already began to improve toward the end of the year for many retailers, and now might be an ideal time to scoop up shares that are still priced low. Nike (NYSE:NKE) and Tanger Factory Outlet Centers (NYSE:SKT) are both leading retailers that have suffered through the COVID-19 pandemic and are recovering.

Nike gained 40% in 2020 and is flat so far in 2021. Tanger stock lost about one-third of its value in 2020, but is up already 40% in 2021. Let’s assess their future prospects.

Leading brands with plans

Nike is the leading sports apparel and footwear brand with $37 billion in 2020 sales. Sales declined as much as 38% during the pandemic, but they quickly recovered, and the company is back to solid growth with a 9% sales increase in the second quarter ended Nov. 30, 2020.

Nike sneakers.

Image source: Nike.

Led by CEO John Donahoe — who comes from a tech background, including time as eBay CEO — Nike has emerged as a strong digital contender in retail. It operates several apps that create a Nike community, which leads to the creation of value. For example, it live-streamed a product launch for the first time in the second quarter that sold out in two minutes. It’s also built its brand as a premium label, but with a range of price points that make its products accessible. 

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Nike’s future plans center around the marriage of physical and digital, such as its new Shanghai store that allows customers to follow a digital experience as they browse through the store. 

Unlike some of its peers, Nike has a very strong direct-to-consumer program and a large number of its own stores. That allows the company to tap into its customer base in a more personal way.

Tanger operates 38 factory outlet malls featuring premium brand names. Obviously this was a huge dud during the pandemic as all the stores were closed and many tenants couldn’t pay their rent. But the situation is improving, and in the third quarter ended Sept. 30, 2020, Tanger collected 89% of rent and had positive income. Shopping centers are at 93% occupancy, and 99% of those are open.

But that doesn’t mean the company’s woes are completely over. Shopping is switching to digital, and malls are suffering. Although it doesn’t have digital channels to benefit from the shift to e-commerce, it does have a digital presence and offers perks such as curbside pickup and a rewards club. Its bargain fashion is still be a draw, and most companies, like Nike (which is a tenant), are implementing an omnichannel strategy that includes physical retail, especially for overstock. 

In the company’s favor going into 2021, its shopping centers are all open-air, and are in good shape to recoup sales as Americans get vaccinated and people start shopping.

The dividend

Tanger is a real estate investment trust (REIT), which means it has to distribute 90% of its taxable income to shareholders. The company suspended its dividend after a payment in May, but reinstated it in January. It currently yields 4.89%, and was issued at half of the previous dividend, in April 2020.

Nike also pays a dividend, with a 0.71% yield. That’s not terrific, but the company has increased the dividend annually for the past 17 years. 

The verdict

Nike is trading at a high 80 times trailing-12-month earnings, whereas even at its elevated price, Tanger is only trading at five times earnings. But there’s good reason for that.

For investors looking for a dividend, Tanger may be a great option, but it comes with risk. For higher growth, Nike is the better buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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