Nike, Already World's Largest Sneaker Maker, Proves It's Still A Growth Company
Nike shares surged nearly 8% in after-hours trading on Thursday after the only fashion stock in the 30-member Dow index reported better-than-expected fiscal second-quarter profit and sales and eased worries that the U.S.-China tariff spat will hurt demand in China, the company's critical growth market.
“Nike continues to win with consumers in China,” Nike chief financial officer Andy Campion said on a conference call. “While there has been uncertainty of late regarding U.S.-China relations, we have not seen any impact on our business. … We are bullish about our potential to continue delivering strong, sustainable and very profitable growth in this important geography.”
In fact, Nike's revenue minus currency impact in its greater China business jumped 31%, its 18th straight quarter of double-digit gains, Campion said.
In North America, Nike’s largest market, the company saw strong demand, with sales up 9%, led by demand for both its shoes and its apparel. More importantly, sales of its key Jordan line rose in the “double digits,” returning to “healthy sustainable growth in North America.” In Europe, sales rose 14% as Nike said it gained "significant" market share.
Total companywide revenue in the quarter ended Nov. 30 rose 10%, to $9.4 billion, on gains across all regions and would have climbed 14% minus currency translations impact. The Swoosh brand's constant-currency sales jumped 14%, to $8.9 billion, while Converse sales rose 6%, to $425 million.
In another sign of full-priced demand, gross margin widened by almost 1 percentage point, to 43.8%, helped partly by higher average selling prices and growth in Nike’s own direct-to- consumer retail and online business.
Digital sales surged a combined 41%, driven by mobile orders. In fact, at a pace far outpacing the retail industry average, Nike’s mobile demand has exceeded more than half of its e-commerce sales, Campion said. In addition to expanding its own online sales, Nike has begun to sell direct on online giant Amazon. It's also selling on Walmart's urban play, Jet.com.
How does Nike plan to continue that momentum? Its new flagship—dubbed Nike House of Innovation 000, which opened in November on New York’s Fifth Avenue—offers some clues.
Not only does it give you the ability to customize some apparel or shoes, but the store also has different services and features that reflect the key trends in the industry. For instance, as Nike strives to meet localized demand, a floor showcases items that represent top-selling products in the New York area, which Nike gleans from online and other sales data as part of its Nike Live initiative.
Can Nike respond to customers' desire to shop, scan and pay with their phones and skip the checkout line? Check. Customers can also scan a QR code next to some mannequins and shop the entire look on their phone.
In one critical effort to engage sneakerheads who in turn help the brand drive buzz and create a halo effect across the rest of Nike's product lines, the store has brought to life Nike’s popular SNKRS limited-edition sneaker release app. On a recent visit, a steady stream of customers came straight to the section, tucked away in the back of the flagship’s fourth floor, to check out about a dozen of the hottest shoes on display, such as a see-through version of the new Nike React Element 87 sneaker or a shoe designed in partnership with PlayStation. When a shoe is picked up, a digital display of information about that shoe would come up on the wall.
With a particular emphasis these days on being able to react quickly to changing consumer tastes, the building is installed with flexible modules so the look and features can be changed easily.
“It’s clear that the consumer is craving experiences, and the fastest way to meet that demand is to test, learn and scale new features,” Nike CEO Mark Parker said on the call Thursday, adding that the performance at the New York flagship and at the company's new Shanghai flagship has topped expectations. “Both stores create the most personal and responsive retail environment in the industry. It’s a digital experience brought to life in a physical space.”
In another move that shows the athleisure trend is still hot—and suggests Nike wants a bigger share of that pie even as rivals like Lululemon keep growing—Nike is doubling down on its product lines for women, where sales growth has outpaced that for men's lines. For instance, Nike is unveiling new “high-performance kits” for the Women’s World Cup in France as well as a yoga collection that includes men’s apparel for the first time at Nike, Parker said.
The "Just Do It" company is determined not to be outdone.