By Eric Smith
After Nike Inc. blew past earnings and revenue estimates in the second quarter, CEO Mark Parker had plenty to discuss on Thursday afternoon’s earnings conference call with analysts.
Strategic execution of the company’s “consumer direct offense across all dimensions of the portfolio globally” drove the company’s solid performance. Earnings rose 10.4 percent on a 9.6 percent revenue gain, with both earnings and revenue topping Wall Street’s targets as margins improved and strong sales were seen in North America and China. Investors reacted positively with shares climbing in the high-single digits in morning and midday trading on Friday.
Two distinct themes about Nike’s future path emerged in Parker’s comments: continued digital growth and a heightened focus on women’s footwear and apparel business.
First, digital. Nike’s digital growth in Q2 was stellar, with the company growing 41 percent on a constant currency basis. Digital revenue grew more than 30 percent in North America, more than 30 percent in Middle East and Africa (EMEA), more than 40 percent in Greater China and more than 75 percent in Asia Pacific and Latin America (APLA).
For Parker, this consistency of digital growth across geographies was more proof that Nike is executing where it needs to in today’s “highly dynamic” and competitive marketplace. It also provided a glimpse of Nike’s roadmap for the remainder of Fiscal 2019 and beyond.
“Consumer expectations are accelerating and the macro-economy is increasingly volatile,” he said. “A key part of our strategy to win in this environment is to double down on digital. Our digital transformation is taking hold through a series of positive disruptions across the business.
“For example, we’re leading the industry through a retail revolution. We’re creating sports first, smart adaptive footwear. And we’re investing in a global supply chain that delivers personnel at scale. It’s all incredibly energizing and we find that the more disruptive we are, the more we grow. Our digital disruption is fueled by breaking old models, building new commerce partnerships, emerging new talent with our years of industry experience. Our teams are driving change and it’s yielding excellent results.”
Parker said that the company’s “ambitious digital transformation is driving the strong results you see today,” and one digital area where Nike has shifted its focus is mobile, which now represents more than 50 percent of Nike’s digital commerce revenue.
Analysts took note of Nike’s strong digital growth in Q2 and its aspirations for doubling down on it during the second half of the fiscal year and into Fiscal 2020.
In a note to investors, Jim Duffy of Stifel highlighted the digital efforts that are paying off for Nike. He wrote, “With a strong pipeline of new products and building digital competencies, we expect more to come and continue to see upside capacity to the outlook for revenue and gross margin into FY20. We have confidence in Nike to execute through macro related challenges into FY20 and gain share and continue to view Nike shares as a solid core holding for large cap growth investors.”
And Sam Poser of Susquehanna Financial Group LLLP added that Nike’s digital capabilities are creating some separation with competitors. He wrote in a note to investors: “Improvements in the scarcity model, the speed of the product pipeline, and digitally-driven consumer engagement are still in their early stages and should continue for the foreseeable future. Due to the aforementioned improvements, Nike is boxing out its competition, including Adidas and Under Armour.”
In addition to digital, Parker and CFO Andrew Campion spent some time on the call discussing Nike’s focus on its women’s business. Campion noted that the women’s footwear and apparel markets are 1.5 times larger than men’s, but women’s represents less than a quarter of Nike’s total revenue though its women’s business grew double digits in Q2.
“There’s incredible momentum for women in sport right now as athletes elite and every day lead a movement of health and wellness, while driving a strong appetite for athletic footwear and apparel,” Parker said. “This energy is manifesting in a number of ways. For example, footwear for women overall was up 20 percent for the quarter, and sneakers for her are really taking off with the Sage Air Force 1 emerging as for favorite franchise, owning the No. 1 spot on nike.com for 5 weeks running.”
Parker said that women’s growth is outpacing men’s growth for the quarter, and that Nike sees that continuing based on a number of factors.
“I think women are embracing sneaker culture,” he said. “We’re seeing that with some of the iconic franchises that we’ve had like the Air Force 1 that are actually designed specifically for women with deeper insights, that, I think, resonate.”
Nike’s women’s business, which is evenly distributed across the company’s region, is largely comprised of sportswear, running and training. Now, the company is ramping up its marketing message to better position the brand for women domestically and around the globe.
“I think the brand is actually speaking to women more directly and personally,” Parker said. “That’s going to be amped up throughout 2019 as we head towards World Cup. You’re going to see Just Do It with a big emphasis on women’s.”
Photo courtesy Nike Inc.
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
