Nike (NYSE: NKE) is back. The footwear and sports apparel titan this week announced earnings results that finally delivered the growth rebound investors have been anticipating for almost two years.
The recovery was powered by Nike’s fastest pace of new product introductions in history, and pushed along by an aggressive shift into the digital sales channel. But there were many ways that the company outperformed this past quarter.
Let’s look at a few standout numbers from this encouraging sales report.
3%: Growth in the U.S.
Nike’s growth rates had been worsening in its core U.S. market for nearly two full fiscal years, but management’s comments last quarter suggested that this negative trend would finally end in the fiscal fourth quarter. Nike outperformed that bullish forecast, with the U.S. segment growing 3% rather than holding flat, as executives had predicted.
80%: Growth from new product launches
Back in its October investor’s day meeting, Nike predicted that its rebound would be driven by a stepped-up pace of new product introductions like the VaporMax and Air Max running platforms. That’s exactly how this quarter played out, with 80% of sales growth coming from its most recent shoe and apparel releases.
35%: China segment sales gains
The China segment grew at twice the rate of any of the company’s other geographies and remains a long-term expansion target for the business. That division, whose demand is heavily tilted toward direct-to-consumer sales, also logged a 42% spike in earnings.
44.7%: Gross profit margin
Gross profitability expanded by 0.6 percentage points to reach 44.7%. The uptick beat management’s expectations thanks to healthy price trends, including in the digital sales channel.
The improvement is strong evidence that Nike has freshened inventory to the point that it no longer needs to rely on price cuts to keep its products moving through its retailing network. It also highlights the fact that the move toward e-commerce is a positive for Nike, since profitability is much higher in direct sales to customers than it is for shipments to wholesalers.
25%: Boost in marketing spending
Nike dramatically scaled up its spending on marketing, advertising, and branding, with demand creation expense jumping 25% to $983 million. The increase included spending on major events like the NBA Finals and World Cup. The expense represents a competitive advantage for Nike, since few rivals could hope to match its annual global brand support, which rose 7% in the last 12 months to $3.6 billion.
4%: Inventory growth
Inventories expanded at a much slower rate than sales this quarter, which leaves the company in a strong pricing position heading into its new fiscal year. Management said this is further confirmation that the U.S. segment has returned to a “pull” market that is being powered more by demand than a “push” market that requires price cuts and promotions due to excess supply.
0.5%: Forecast for gross profit margin increase
For the new fiscal year, Nike is predicting its first increase in gross profitability since fiscal 2016 thanks to the combination of improving sales trends and a product pipeline that’s packed with new releases across its footwear and apparel portfolios. And, rather than rising at a mid- to high-single-digit rate for the year, as executives had predicted back in March, overall sales are now expected to increase in the high single-digit range following this past year’s 6% boost.
Overall, the report ticked a lot of positive boxes for investors by showing concrete evidence of an operating rebound that’s progressing right along with management’s rebound plans.
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