Two years ago Nike Inc. embarked on a new strategy dubbed Consumer Direct Offense to grow its direct-to-consumer business, and first-quarter results saw the fruits of that labor.
In a Nutshell: The company saw a 25.2 percent jump in first-quarter profits, boosted by a gross margin increase of 150 basis points to 45.7 percent due to higher average selling prices and margin expansion in its Nike Direct business.
Mark G. Parker, chairman, president and CEO, told analysts during a conference call on Wednesday, “It was a quarter the proved the depth and balance of our complete offense, building on the strength of our foundational business drivers and capitalizing on the untapped dimensions of our portfolio.”
He said that the quarter saw broad-based growth in all geographies, led by its international business, which grew 16 percent. The company also saw double-digit growth in its women’s business, and in its footwear and apparel categories, which he said “continues to feed the growing consumer demand for comfortable athletic product.” Also growing was digital, rising 42 percent, which Parker said shows the “power of more personal relationships with the consumer.”
The CEO said the company is now also beginning to leverage its digital experiences with retail partners. “As we set out to do, we’re creating a differentiated marketplace for Nike by scaling our learnings and best-in-class experiences with our partners,” he said.
Parker also spoke about the tariffs issue, emphasizing that the company believes in the power of free and fair trade. Nike historically has “effectively navigated through excess duties, and we’re confident that we’ll continue to do so under the current dynamic,” he said.
Net Sales: For the three months ended Aug. 31, revenues rose 7.2 percent to $10.66 billion from $9.95 billion.
Revenues for its Nike brand were up $10.1 billion, driven by growth across Nike direct and wholesale, key categories such as sportswear and its Jordan brand, as well as continued increases across footwear and apparel. Converse revenues grew 8 percent to $555 million, on a currency-neutral basis, driven by double-digit growth in Asia and through digital globally, which was partially offset by declines in the U.S.
Parker told analysts that while it doesn’t talk much about its kids operation on conference calls, the category is a “critical” component of the overall business. Kids footwear and apparel “just experienced its biggest back-to-school season ever, driving double-digital growth for the quarter,” he said, adding the company is investing in imagery on its digital platforms as more parents are buying on Nike’s apps.
The company is also “testing new business models through membership to make it easier for parents to buy at the pace that their kids need new product,” the CEO said.
Earnings: Net income spiked up 25.2 percent to $1.37 billion, or 86 cents a diluted share, from $1.09 billion, or 67 cents, a year ago.
CEO’s Take: Parker said, “The key to expanding our competitive edge continues to be our total commitment to the consumer through the Consumer Direct Offense. We’re focused, we’re investing in our brand in key markets, and we’re accelerating in the high-growth dimensions of our business. And that’s especially important in the volatile macroeconomic and geopolitical environment that we see today.”
Parker added, “In any environment, Nike’s foundation for success has always been great product. We continue to see that today with another huge quarter for Nike innovation. We’re delivering more choice and fresh options on some of our hottest products, an expansion of both new and existing platforms and a deeper commitment to serving a wider range of athletes.”