While the strengthening dollar continued to weigh on revenue growth and future orders, Nike Inc. reported a better-than-expected profit for the eighth quarter in a row and lifted its revenue guidance for its current fiscal year.
Earnings in its fourth quarter ended May 31 rose 23.9 percent to $865 million, or 98 cents a share, handily exceeding Wall Street’s consensus estimate of 83 cents.
Revenues grew 4.8 percent to $7.78 billion, and gained 13 percent on a currency-neutral basis. The performance was led by broad-based revenue growth, gross margin expansion and a lower tax rate more than offset increased SG&A investments.
The quarter capped off another robust year for Nike. Revenues in the year jumped 10.1 percent to $30.6 billion while profits advanced 21.5 percent to $3.3 million, or $3.70 a share.
“This past fiscal year we managed through a volatile currency environment and sharpened our focus in key markets and we will continue to drive that same level of discipline and focus as we look ahead to fiscal year 2016,” said Mark Parker, Nike’s CEO, on a conference call with analysts. “As we have consistently done in the past, we will leverage the power of the Nike portfolio to drive growth.”
Total Nike Brand sales increased 13 percent on a currency-neutral basis in the quarter, driven by growth in nearly every geography and key category except emerging markets and global football (soccer). By category, Nike Brand’s gains were led by a 17 percent gain in footwear. Apparel grew 7 percent while equipment declined 2 percent. On a reported basis, sales grew 5.2 percent in the quarter to $7.38 billion. Nike Brand EBIT in the quarter climbed 13.4 percent to $1.28 billion
For the year, Nike Brand revenue was up 14 percent with double-digit growth in North America, both European geographies and China. Nike Brand DTC revenue was up 27 percent for the quarter. For the year, DTC revenue was up 29 percent, driven by comp store growth of 16 percent, online growth of 59 percent and new stores.
Total Nike brand reported futures were up 13 percent on a currency-neutral basis although they declined 14 percent on a reported basis.
“The success in our business is the natural outcome of putting the consumer at the center of everything we do,” said Trevor Edwards, president of the Nike Brand, on the call. “Our connection with consumers strengthens our brand every day from our own retail to wholesale partners, from in-store to online, from digital experiences to unforgettable live events.”
By region, sales on a currency-neutral basis in the North America region for the Nike Brand grew 14 percent in the quarter. The gains were led by a 17 percent boost in apparel, followed closely by a 14 percent gain in footwear. Equipment sales were down 5 percent. Reported sales were up 13.3 percent to $3.73 billion. EBIT in North America gained 19.4 percent to $1.06 billion.
For the year, North America’s revenues grew 11.7 percent to $13.7 billion, the fifth consecutive year of double-digit revenue growth. Growth for the year was driven by higher revenues in nearly every key category, led by double-digit growth in basketball, sportswear and women's training. The growth also reflected strength in both sales to wholesale customers and DTC.
North America EBIT grew 18.4 percent for the full year, to $3.6 billion, driven by strong revenue growth and gross margin expansion.
Edwards said the growth came despite the headwind from the West Coast port congestion. Growth was driven by nearly every category and a continued strong performance from DTC, which grew 13 percent in the quarter with Nike.com growing 31 percent.
Edwards said the strong performance was complemented by “strong executions” with its wholesale partners such as the Fieldhouse with Dick's SG, House of Hoops with Foot Locker and the Track Club in the Finish Line.
Regarding the West Coast port congestion, Nike diverted some shipments to alternative ports and shipping select product via airfreight. While product flows, as expected, began to normalize in Q4, Nike still expects it will take a couple of quarters before product flow fully returns to normal.
“That said,” added Edwards. “We continue to see great demand for our products in the marketplace and expect to efficiently move through the inventory and maintain a healthy market. We continue to see incredible potential for growth in North America and the reason is simple and familiar.
We remain focused on the consumer, delivering innovative products and services through compelling retail experiences. This allows us to expand the market while also taking market share.”
Futures in North America for Nike Brand were ahead 13 percent on both a reported and currency-neutral basis.
In Western Europe, sales on a currency-neutral basis for Nike Brand climbed 17 percent in the quarter, carried by a 23 percent jump in footwear. Apparel sales were up 2 percent while equipment sales rose 9 percent. On a reported basis, sales were down 3.4 percent to $1.27 billion. EBIT in Western Europe jumped 44.3 percent to $277 million.
For the year, Western Europe sales grew 14.7 percent to $5.7 billion despite the weakness of the Euro. On a currency-neutral basis, revenue grew 21 percent for the year, as every territory grew and double-digit growth was seen in every key category except golf and global football, which grew at a high single digit rate despite tough comparisons against the World Cup last year. Western Europe EBIT increased 49.4 percent to $1.28 billion in FY15, driven by revenue growth, gross margin expansion, and SG&A leverage.
Edwards said growth in the quarter and throughout the year in Western Europe was fueled by continued efforts to transform the marketplace in line with the category offense.
Strong growth was seen across most key categories, led by sportswear, running, women's training and basketball; as well as across territories, particularly AGS (Austria, Germany and Switzerland) as well as in the UK and Ireland. Said Edwards. “Our execution with our wholesale partners such as JD sports, Foot Locker and Intersport all performed well in the quarter as did our own DTC, which had revenue growth of 39 percent.”
Future orders in Western Europe were up 14 percent on a currency-neutral basis but declined 11 percent on a reported basis.
In Central & Eastern Europe, sales on a currency-neutral basis for Nike Brand climbed 20 percent. The gains were led by Footwear, ahead 33 percent. Equipment grew 20 percent while apparel dipped 3 percent. Reported revenues slid 2.7 percent to $360 million while EBIT in Central & Eastern Europe was flat at $71 million.
FY15 revenue grew 15 percent on a currency-neutral basis driven by growth in every territory except Israel and every key category except action sports and global football which declined at a low single digit rate, reflecting comparison loss last year's World Cup. Sales on a reported basis inched up 2.2 percent to $1.4 billion.
EBIT declined 11.5 percent in the year, to $247 million, largely reflecting significantly weaker currencies especially the ruble. Future orders were up 17 percent on a currency-neutral basis but were down 9 percent on a reported basis.
In Greater China, sales surged 20 percent for the Nike Brand on a currency-neutral basis, lifted by a 29 percent hike in footwear. Apparel was ahead 6 percent while equipment sales were flat. On a reported basis, sales improved 18.1 percent to $829 million. EBIT in Greater China grew 23.7 percent in the quarter to $266 million.
“Our strong growth in the quarter was driven primarily by running, basketball, and sportswear,” said Edwards. “For our wholesale partners, doors that have been re-profiled continue to outperform the rest of the fleet and in DTC we saw growth of 52 percent with continued strong growth in our stores as well as online.”
For the year, Greater China’s revenues reached $3.1 billion, up 17.9 percent. Sales grew 19 percent on a currency-neutral basis, driven by the ongoing strength of the brand, a more focused category assortment tailored for China and new retail formats including Nike.com. In addition to driving revenue growth, Nike sharply reduced inventory levels in the market and significantly increased the productivity and profitability of retail for Nike and its wholesale partners. FY15 EBIT for China grew 21.7 percent, to $993 million due to strong revenue growth and expanding gross margins.
Future orders in Greater China were up 22 percent on a currency-neutral basis and ahead 20 percent on a reported basis.
In Japan, sales on a currency-neutral basis for Nike Brand leapt 19 percent in the quarter, led by a 33 percent gain in footwear. Apparel gave back 1 percent while equipment advanced 7 percent. Sales on a currency-neutral basis in the year grew 19 percent. The overall gains in both periods were driven by strong growth in sportswear, basketball, and running. On a reported basis, sales in Japan inched ahead 1.8 percent in the quarter to $230 million. EBIT was down 2.6 percent to $38 million.
For the year, Nike Brand sales in Japan were down 2.1 percent to $755 million. EBIT was off 23.7 percent to $100 million. Future orders were up 20 percent on a currency-neutral basis and ahead 1 percent on a reported basis.
In the Emerging Markets region, sales declined 3 percent on a currency-neutral basis in the quarter due in part to comparisons to strong World Cup results last year as well as actions taken in Mexico and Brazil to clear inventories. Seven of the nine territories grew with six growing at a double-digit rate. By category, declines of 12 percent came in apparel and 7 percent in equipment. Footwear inched up 1 percent. Sales slumped 13.5 percent on a reported basis to $934 million. EBIT in Emerging Markets was down 29.2 percent to $192 million.
For the full year, revenue in the Emerging Markets region increased 8 percent on a currency-neutral basis, led by, Pacific, Korea and Southeast Asia, while revenues in Mexico and Brazil declined. Sportswear, running and basketball led the growth for the year while global football declined for both periods due to challenging comparisons against last year's World Cup.
Edwards said Mexico is returning to more normalized inventory levels with clearance efforts and the brand “remains very strong and we're seeing accelerated growth in retail sell-through.”
Brazil’s Q4 sales were down about 20 percent, reflecting comparisons to strong World Cup sales in the prior year, as well as weak macroeconomic environment. But Edwards said the Nike Brand in Brazil “remains incredibly strong in Brazil and we continue to see tremendous opportunity for sustainable, profitable growth.”
Future orders in the Emerging Markets region were up 2 percent on a currency-neutral basis but slumped 14 percent on a reported basis.
Converse's sales climbed 14 percent in the quarter on a currency-neutral basis. On a reported basis, Converse sales were ahead 6.1 percent to $435 million as customer shipments were shifted to Q3 in advance of a systems implementation. The gains were mainly driven by market transitions to direct distribution in AGS (Austria, Germany and Switzerland) and strong performance in the U.S. EBIT was down 14.9 percent in the quarter to $80 million as revenue growth was offset by SG&A investments and market transitions and Converse IP enforcement as well as new systems and infrastructure.
In the year, Converse grew 21 percent on a constant currency basis. On a reported basis, revenue grew 17.7 to $1.98 billion. EBIT increased 4.2 percent for the year to $$517 million.
Edwards also discussed Nike Brand’s performance across categories for the year.
Basketball led the way in its last fiscal year, growing 19.1 percent to $3.72 billion and advancing 21 percent on a currency-neutral basis. The gains were boosted by strong responses to the Lebron 12, Kyrie Irving’s first signature shoe, and the introduction of the lightest Jordan shoe with the Air Jordan 29.
Creating consumer experiences also helped the category with events around the NBA All Star Weekend in New York City as well as the Nike World Basketball Festival in Spain last September offered as examples. Nike officials also said its deal to take over the NBA license from Adidas starting in the 2017/2018 season will help the company grow the sport.
“It's a platform for true innovation, not just for our products, but also for the many ways we can serve our consumers,” said Edwards. “This partnership will let us share our passion for basketball in exciting places like Rio to Beijing to Barcelona.”
Another especially strong category was sportswear, which grew 20 percent on a currency-neutral basis over its last fiscal year. Reported sales grew 14.9 percent to $5.74 billion. Said Edwards, “Sportswear is a key complement to the product assortment for our performance categories, offering an opportunity to elevate the design and technical innovation in traditional sportswear styles while also creating new ones.”
Also called out was running, which advanced 5.0 percent to $4.85 billion and added 9 percent on a currency-neutral basis.
The Air Zoom Pegasus 31 and the Flyknit Lunar 3 led the gains on the performance side as well as Air Max 1 and the Roshe on the premium sportswear side. Edwards said Nike also saw a return to growth in its core running footwear across all markets including North America, which consisted of items in the mid-tier price zones.. In running apparel, Nike’s Dri-FIT knit tops and its Epic Lux tight drove strong gains.
In other categories for the fiscal year:
Football (soccer) declined 2 percent on a currency-neutral basis and slid 6.9 percent on a reported basis to $2.2 billion;
Men's training rose 4 percent on a currency-neutral basis and increased 2.2 percent on a reported basis to $2.54 billion;
Women's training jumped 16 percent on a currency-neutral basis and added 11.7 percent on a reported basis to $1.28 billion;
Action sports increased 4 percent on a currency-neutral basis while easing 0.3 percent on a reported basis to $736 million;
Golf dipped 2.3 percent to $771 million and was flat on a reported basis, at $771 million.
Among genders, women’s stood out, rising 20 percent on a currency-neutral basis. On a reported basis, sales rose 15.1 percent to $5.72 billion. Close behind was young athletes, which grew 19 percent on a currency-neutral basis and added 15.1 percent to $$4.3 billion on a reported basis. In men's, sales increased 9 percent on a currency-neutral basis and increased 4.9 percent on a reported basis to $14.7 billion.
Gross margins in the quarter improved to 46.2 percent from 45.6 percent, primarily attributable to higher average selling prices and continued growth in the higher margin direct-to-consumer (DTC) business, partially offset by higher product input and logistics costs.
Selling and administrative expenses increased to 33.4 percent of sales in the quarter from 33.0 percent. Demand creation expense was $3.2 billion, up 6 percent, due to an increase in investments in support of key events and product launches, as well as investments in DTC and sports marketing. Operating overhead expense increased 16 percent to $6.7 billion due to the expanding DTC business, higher costs for operational infrastructure and investments in consumer-facing digital capabilities.
Nike said it now expects sales, excluding currency fluctuations, to grow in the low double-digit percentage range in the current fiscal year. The company had previously forecast growth to be slightly above high single digits.
For Q1, Nike expects low single digit reported revenue growth, roughly in line with reported futures growth, as FX comparisons are more challenging in the first half of the fiscal year.
