Nike's 'winning strategy' marks a return to North America
Nike on Thursday reported that fourth quarter revenues rose 13% (or 8% on a currency-neutral basis) to $9.8 billion. Net income in the quarter rose 13% to $1.1 billion, primarily due to strong global revenue growth, gross margin expansion and a lower tax rate, partially offset by higher selling and administrative expense, according to a company press release.
By brand, Nike sales rose 9% (currency neutral) to $9.3 billion, driven by double-digit increases in direct-to-consumer sales, international geographies, sportswear, global football and growth in North America. Converse sales fell 14% to $512 million, as growth in Asia was more than offset by declines in other territories, the company said.
Gross margin expanded 60 basis points, (more than anticipated by Wedbush analysts), to 44.7% thanks to higher average selling prices, margin expansion in direct sales and a favorable full-price sales mix.
Nike's turnaround efforts in several areas of its business are resonating worldwide, but the story this week was its return to growth in North America — the company's home base and its biggest region — for the first time in a year. Fourth quarter revenue in North America grew 3% on a reported and currency-neutral basis, led by new innovation platforms, strong digital growth, continued momentum in sportswear and broad growth across apparel.
"We've returned North America to revenue growth and expanding margins, and this healthy momentum is carrying forward into this new fiscal year," CFO Andy Campion told analysts, according to a transcript from Seeking Alpha.
The company appears to be getting a handle on outside market forces. Digital sales and consumer activity online are reshaping the consumer experience "and to some extent disrupt[ed] the more undifferentiated, multibrand, wholesale dimensions of the marketplace," Campion also said, claiming the "Nike Consumer Experience" drove over two-thirds of growth in North America.
Several outside observers would testify to that. The brand "has an excellent experience" in store, online and on mobile, according to Jane Hali & Associates analysts. "Each store we visit has a unique branded experience," according to a JHA note emailed to Retail Dive. "The website and mobile app are easy to navigate and have engaging content. Across all their shopping channels we do note on trend fashion in their merchandise."
The good news comes after a slew of executive departures dampened the brand's image in May, raising concerns about management and work culture at the company.
The brand is also increasing its social media following, with 78.1 million Instagram followers today compared to 76.3 million in March, according to JHA research. Nike Women alone has 7.7 million Instagram followers. And women are a focus at Nike; Campion called women's a major growth area in footwear (including the brand's SNKRS sneakerhead effort) and apparel.
"[Nike's] consumer direct offense growth strategies are working; particularly with new product innovations and digital strategies," Moody's Investors Service Retail Analyst Mike Zuccaro said in an email to Retail Dive.
The year is shaping up to be "the year of Nike SNKRS and apparel," according to Wedbush analyst Christopher Svezia, who said the company's raised sales and gross margin outlook for the coming fiscal year is "likely conservative."
Even its anticipation of rising costs was good news. The retailer raised its fiscal 2019 guidance for revenue to land in the high single digit range, with gross margin expansion that will be partly offset by rising operating expenses to support growth. "Nike's robust 4Q18 beat and raised outlook marks the return of the company to global growth and is demonstrative of its winning strategy," Svezia wrote in comments emailed to Retail Dive.
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