Nike execs see digital as 'the majority' of future business
Nike reported second quarter revenue of $9.4 billion Thursday, up 10% from the prior year, according to a company press release. By brand, Nike brought in $8.9 billion in revenue, up 14%, and Converse brought in $425 million, up 6%. The company's revenue grew in "nearly every key category," according to the release.
Net income in the quarter reached $847 million, an increase of 10% from the year-ago period, thanks to strong revenue growth, and gross margin increased 80 basis points to 43.8% driven by higher selling prices and margin expansion of Nike Direct, per the release.
Nike continued its streak in North America, with 9% growth in the area, and close to 20% growth in its international geographies, CEO Mark Parker told analysts, according to a Seeking Alpha transcript. Notably, the athletics retailer also notched digital growth of 41%, with mobile accounting for "well over" 50% of digital revenue.
While Nike's numbers were great, the retailer's second quarter earnings were really all about the potential of digital. The company is not only aiming for over 30% digital penetration in the short term, but is also planning for a future where the business is dominated by digital.
"Looking out longer-term, we do see the potential to have digital be the majority of our business," CFO Andrew Campion told analysts on a call. He also pointed to the importance of integrating digital tools into the physical space to ease the shopper experience and drive digital penetration. That's evident in its newly-opened House of Innovation flagships in New York and Shanghai, as well as at its local small-format store concept Nike Live, the first of which opened in Melrose, Los Angeles in July.
"While we already have extraordinary digital momentum, we're still in the early stages of this transformation," Campion said. "We are executing against a 3-year roadmap of new digital capabilities that will enable us to continually serve consumers better. We're aggressively building those capabilities in-house and accelerating our development of those capabilities through acquisition."
The two store concepts, which both rely heavily on mobile for convenience-based features like in-store pickup lockers and product try-on requests, have "exceeded expectations," according to Parker. He also pointed to the potential they have for the athletics retailer's loyalty enrollment, which is required in order for users to take advantage of the app and all of its features, and provides the retailer with customer data from its most mobile-heavy stores.
"The gateway for consumers to get the most value out of these new experiences is membership," Parker said on the call. "We want more doors to feel like a personal home for members, where we can elevate one-to-one service. And we want to leverage mobile apps to make sure NIKE is serving our consumers wherever they are."
Other focus areas for the company include women's apparel and footwear, the latter of which grew 20% in the most recent quarter. It's a space the retailer defined as a focus area back in March, and continues to be a development point for management.
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