Nike sees opening for domestic sales growth in 2019
Nike Inc. on Thursday reported that third quarter revenue rose 7% to $9 billion, up 3% on a currency-neutral basis, led globally by international units and Nike Direct. Gross margin in the quarter declined 70 basis points to 43.8%, due primarily to currency fluctuations, which were partially offset by lower product costs, according to a company press release.
By brand, Nike revenues rose 4% on a currency-neutral basis, to $8.5 billion, pushed by international sales and including double-digit growth in Nike Direct as well as growth in Sportswear and Nike Basketball. Converse revenues fell 8% to $483 million on a currency-neutral basis, as international and digital growth were more than offset by declines in North America.
But the story for Nike on Thursday was a renewed optimism in its domestic business. Nike North America revenue is now projected to be roughly flat compared to the prior year and is set to return to growth in the first half of fiscal year 2019, CFO Andy Campion told analysts, according to a transcript from Seeking Alpha.
Nike is keenly focused on reviving its Jordan brand, turbo-charging its customer experience concepts online and off, and amplifying designs by and for women, all of which are helping move the needle in North America.
"We have reset Nike's supply. We're fueling demand through the launch of innovative products. We have reignited brand heat," Campion said. "We're connecting more directly with consumers through our digital ecosystem and orders from our strategic partners are building. In short, Nike has returned to a pool market in North America."
Key products, including Air Max 270, Epic React, Shox Gravity, have boosted apparel sales growth and increased e-commerce sales, noted Wedbush analysts Christopher Svezia and Paul Nawalany in comments emailed to Retail Dive.
"Key initiatives designed to reignite Nike's growth in [North America] and around the globe are gaining traction and were evident in its Q3 results that beat across all lines," they wrote. "[North American] growth has begun to inflect, e-commerce is accelerating and [average sales prices] are expanding, potentially leading to growth in Q4 and accelerating into [fiscal 2019]."
But there is also reason for concern. For one, Nike's concerted effort to win female customers has been undermined by the departure of two top executives, Trevor Edwards and Jayme Martin. CEO Mark Parker opened a conference call with analysts by addressing the topic, but provided few specifics.
"I'd first like to acknowledge the changes we made last week to further evolve our culture and restructure our leadership. We became aware of some behavioral issues that are inconsistent with Nike's values of inclusivity, respect and empowerment," he said, reminding investors that he plans to extend his own retirement beyond 2020.
The company is likely working to change its culture quickly, and Parker's comments show that its own notion of itself is being tested by its leaders' behavior, according to Mark Lipton, graduate professor of management at The New School and author of "Mean Men, The Perversion of America's Self-Made Man."
"The comment about Nike's commitment to 'inclusivity, respect and empowerment' clearly speaks volumes to the notion that each or all of these is currently being tested by behaviors from high-level individuals," he told Retail Dive in an email. "[These] are C-Suite memes: code for what is perhaps ugly behavior that can ruin the cohesion and collaboration in a firm dependent on innovation and diversity of thought."
- press release via BusinessWire NIKE, Inc. Reports Fiscal 2018 Third Quarter Results
- Seeking Alpha Earnings Call Transcript NIKE's (NKE) CEO Mark Parker on Q3 2018 Results
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