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Digital Drives Nike’s 15 Percent Income Gain to Top $1 Billion in Quarter

Nike Inc. posted strong gains in sales and profits in the first quarter on the strength of its marketing efforts, online sales and global reach.

In a Nutshell: Nike Inc. scored double-digit revenue growth in the first quarter of fiscal 2019, led by the continued success of the Consumer Direct Offense that fueled growth across all geographies, as well as wholesale and Nike Direct, led by digital. Consumer Direct Offense is designed to create local businesses in 12 key cities on a global scale.

The company said inventories were flat with the prior-year period at $5.2 billion, primarily driven by a clean marketplace, with healthy inventories across all geographies due to strong full-price sell through on new innovation.

The quarter did not include results of the surge in online sales of Nike Inc. apparel and shoes after quarterback-turned-activist Colin Kaepernick became the face of a new advertising campaign. Nike’s Kaepernick ad debuted on Labor Day and product orders rose 27 percent in the four days that followed.

Sales: Revenue in the three months ended Aug. 31 for Nike Inc. increased 10 percent to $9.9 billion. Revenue for the Nike brand was up 10 percent to $9.4 billion, boosted by double-digit growth internationally and in Nike Direct, as well as strong results in North America, and growth in almost every category. Converse brand revenues rose 7 percent to $527 million in the period, mainly driven by growth in Europe and Asia.

Earnings: Net income in the quarter increased 15 percent to $1.1 billion on the strong revenue growth, solid gross margin expansion and selling and administrative expense leverage. Gross margin increased 50 basis points to 44.2%, as favorable full-price sales mix and margin expansion in Nike Direct was partially offset by higher product costs.

Selling and administrative expense increased 7 percent to $3.1 billion. Demand creation expense was $964 million, up 13 percent primarily driven by sports marketing investments, brand campaigns and key sports moments.

CEO’s Take: Mark Parker, chairman, president and CEO, said: “Nike’s Consumer Direct Offense, combined with our deep line up of innovation, is driving strong momentum and balanced growth across our entire business. Our expanded digital capabilities are accelerating our complete portfolio and creating value across all dimensions as we connect with and serve consumers.”