Nike (NKE 80.33, +8.64, +12.04%) is trading sharply higher today (+12%) after
reporting Q4 (May) results last night. EPS rose 15% year/year to $0.69/share
while revenue rose 12.8% year/year to $9.79 bln. Both results were ahead of
market expectations. Nike benefited from strong double-digit revenue growth in
international markets and in NIKE Direct (collective name for operations distinct
from sales to wholesale customers) globally. Also, just as importantly, Nike
finally saw a return to growth in North America. It's worth noting that since
the beginning of fiscal 2018, Nike has invested in and undergone a complete,
strategic digital transformation of the company end-to-end designed to engage
consumers more directly and personally with company products and to create a
better price-value relationship with customers. The strong MayQ results suggest
that the make-over, known as the Consumer Direct Offense, has had an impact.
On the call, Nike management highlighted recent product innovation efforts. Management says that the company is “winning” through new innovation that scales products into “platforms” that drive growth and “brand heat” with consumers. Strong reaction to the company’s React and Air Max lines, offered in multiple styles and across categories, demonstrates the success of this approach.
Nike's lineup of fresh products shared with the investment community at its Investor Day has entered the marketplace. The company has seen consumer response to products like Nike React live up to big expectations. Nike extended launch momentum from last quarter and scaled significantly with strong global sell-through performance. The Epic React, a foam-bottomed shoe unveiled to customers in January and offered for sale in February of this year, has grown quickly to claim space as the #2 performance running shoe in the marketplace above $125, trailing only the company’s own Air VaporMax. Zoom Air, meanwhile, continues to be the training platform of choice for serious runners, led by Nike's best-selling Pegasus line.
Overall, the company’s Running segment grew 7% for FY18, and with a loaded slate of products due for launch in FY19, led by the Pegasus Turbo with Zoom X cushioning, Nike sees a great runway ahead for its largest performance category. In Sportswear, consumer demand for all-day comfort has positioned Air Max among the fastest-growing platforms in the industry. Brand stalwarts such as the Air Max Plus 95, 97, and 98 continue, says management, to perform well and attract interest, allowing lines like the newer Air VaporMax to build on that demand.
Overall, the company currently sees “great energy” across its women’s product and market place teams, and women's lifestyle products continue to set the pace for the demographic category. Highlights from the segment include growth in sales of tops and fleece. For the quarter, Women's saw the Air Force 1 continuing its strong momentum, the Blazer ramping up quickly in China and APLA, and key Air Max icons growing triple digits. Nike names prospects to scale its Women's Sneaker business across both NIKE and Jordan as among the company’s biggest opportunities in FY19. Looking ahead, Nike hopes to continue to innovate in bra-wear through its Flyknit Apparel products in the second half of the year. And as part of a more holistic point of view on Women's across Running, Training, and Sportswear, Nike intends to roll out a new approach offering seasonal head-to-toe capsules and collections, an idea similar to that offered via its Meshed Up collection this quarter.
One of Nike's most important performance categories, NIKE Basketball, has produced strong momentum this year off the back of the company's NBA partnership and high demand for key signature styles. Major accomplishments cited by Nike from its “amazing year one with the NBA” include a new approach to jerseys, driving significantly higher NBA jersey sales; the Showtime hoodie, a new premium apparel business for FY18, with sell-through approaching 100% across most teams and channels; and a steady flow of LeBron player edition footwear, which Nike launched through LeBron Watch on its 2015-launched SNKRS app.
Highlights on the international front include its international business growing 23%, with the Greater China region up 35%. Nike’s North American operations have reportedly resumed healthy, sustainable growth. Sportswear, a $10 bln business for Nike, had another quarter of double-digit growth. Nike saw solid momentum in key performance categories, and NIKE Digital was up 41% for the quarter as the company’s digital efforts shifted Nike’s approach to immersive customer connection experiences and product delivery.
In addition to earnings, Nike also announced a new 4-year, $15 bln share repurchase program for its Class B common stock. The company anticipates that the current $12 bln share repurchase program will be completed within FY19. The new program will begin upon the completion of the current program.
In sum, this was a very good quarter for Dow component Nike, featuring strong international growth and the return of growth to North America. Investors are particularly pleased to see North America return to growth as this region is Nike's bread-and-butter. Nike’s recently deployed series of new products have been a hit with consumers, and the company expresses confidence that customer enthusiasm will not dim. And finally, Nike went all-in on digital, and that seems to be paying off. The stock leaped to all-time highs at the open this morning.
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