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Nike’s Top-Line Recovery Comes With a Little Help From Singles Day

Nike appears to be poised for a healthy 2021 as the athleticwear and footwear giant reeled in profits totaling $1.3 billion and revenues of $11.2 billion—up 9 percent year-over-year across currencies and well ahead of Wall Street’s expectations of a 2 percent revenue jump. The growth marks a return to top-line growth for Nike following two down quarters stemming from the Covid-19 pandemic.

In a Nutshell: Nike is raising its 2021 full-year guidance to “low-teens” revenue growth from an initial range of “high single-digit” to “low double-digit” sales growth.

Sales in Greater China tipped the scale for Nike, where revenue growth of 24 percent to $2.3 billion was due to a successful Singles Day turnout. Nike had the highest traffic on Tmall among sports brands, according to CEO John Donahoe.

In an earnings call, Donahoe said that Singles Day brought in an estimated 4 million new shoppers to Nike and drove more than $500 million in digital sales. Nearly half of items shipped during the event were delivered either same-day or next-day.

Across all geographies, Nike’s digital performance underscores the company’s focus on Consumer Direct Acceleration. Nike brand digital sales increased 84 percent, or 80 percent on a currency-neutral basis.

Chief financial officer Matt Friend said in the call that Nike will continue to increase its digital penetration further by improving product availability through search optimization, moving inventory across marketplace channels and increasing digital fulfillment capacity through scale and automation. Thus far, robots have shipped 1 million boxes for the company as Nike has increased its digital fulfillment capacity 300 percent in North America and 400 percent in Europe, the Middle East and Africa (EMEA).

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“We’re investing in technology in the supply chain, so that we can better predict where to put inventory, where we think customers want the inventory,” Friend said.

Inventories were $6.1 billion, down 2 percent compared to the prior year period, with Nike continuing to take a cautious approach to supply and demand management ahead of the second half of the fiscal year.

Nike credits the ability to replenish inventory more quickly with shorter overall lead times to its “Express Lane” initiative. Products that are now manufactured via Express Lane, which is a digital staging system for raw materials that need quick deployment in on-demand product lines, represent 20 percent of Nike’s overall business.

Donahoe lauded the company’s innovation pipeline for its introduction of new products within the past 90 days, launching more than 100 styles of extended size apparel across the Nike and Jordan brands. As part of Nike’s sustainability initiatives, the company plans to launch its first performance shoe in its sustainable footwear platform in the “coming quarters.”

Gross margin decreased 90 basis points (.9 percentage points) to 43.1 percent, primarily driven by higher promotional activity to reduce excess inventory resulting from Covid-19 impacts and restructuring-related costs, both partially offset by favorable full-price product margins.

Nike expects gross margin to be flat in the third quarter, marking higher full-price sales and lower costs of fulfillment.

Cash and equivalents and short-term investments totaled $11.8 billion, which is $8.3 billion higher than last year primarily due to proceeds from a corporate bond issuance in March and positive free cash flow, partially offset by cash dividends and share repurchases.

Total liquidity as of Nov. 30 was $15.8 billion, which includes cash and equivalents, short-term investments and undrawn committed credit facilities.

Net sales: Second quarter revenues at Nike were $11.2 billion, up 9 percent compared to the prior-year period and up 7 percent on a currency-neutral basis driven by growth across all geographies.

Greater China reported revenue growth of 24 percent to $2.3 billion, while North American sales rose 1 percent in the quarter to $4 billion. Europe, Middle East & Africa (EMEA) sales grew 17 percent to $2.96 billion, while Asia Pacific & Latin America (APLA) sales were flat at $1.47 billion.

Revenues for the Nike brand were $10.7 billion, an 8 percent increase over the prior year on a currency-neutral basis. The sales increase was driven by strong double-digit growth in Nike’s direct offering across its own stores and e-commerce site, as well as growth in sportswear and the Jordan brand, slightly offset by a 14 percent decline in the company’s wholesale business.

Revenues for Converse were $476 million, down 4 percent on a currency-neutral basis, as double-digit growth in digital and growth in Asia were more than offset by declines in Europe and North America primarily due to tighter supply and strategic distribution shifts.

Net earnings: Net income was $1.3 billion, up 12 percent driven by the revenue growth and lower selling and administrative expenses, and slightly offset by lower gross margin.

Diluted earnings per share was 78 cents, an 11 percent increase year over year.

CEO’s Take: “We’ve now had three straight quarters of roughly 80 percent digital growth,” Donahoe said in the call. “As we’ve said, this growth won’t always be so uniform, but we are growing the pie and taking share from competition. This is the sharp point of our strategy. The consumer shift to digital is permanent, and our digital penetration will only increase in years to come.”