Retailers are facing innumerable problems such as lower mall traffic, growing popularity of online shopping and cold winters. However, Nike (NKE), a footwear retailer, seems to be unaffected by such problems in the U.S. Continuing with its earnings beats in each quarter, in the last year, Nike once again attracted customer attention as evident from its third quarter results. The numbers were ahead of the Street’s estimates, sending its stock higher.
Numbers in Detail
Revenue grew 13% to $7 billion over last year as demand for the retailer’s products increased. Nike largely benefited from an increase in product prices and growing interest in its products. One of the key factors of growth was product innovation, during the period. Nike+ FuelBand and Fuel Band SE in footwear and Dri-FIT knit and Aeroloft in apparel were among the new products which attracted customers.
Nike’s focus on bringing in new products and marketing them adequately led to growth across all products and geographical segments. Both the Nike brand and the Converse segment grew 7% and 14%, respectively. Geographically, sales from North America and China surged 9% and 8% to $2.8 billion and $629 million, respectively. In fact, revenue from Europe also went north with the Western and Eastern parts growing by 18% and 17%, respectively.
Earnings, too, increased 4% over last year to $0.76 per share because of an increase in selling price and a decrease in input costs. This also helped in expanding the company’s gross margins by 30 basis points to 44.5%. Nike’s focus on higher margin products was one the key drivers of margin expansion.
Nike plans to increase its marketing spend in order to promote its new products. Therefore, it has a bright future with increased advertising continuing to stir customer demand. Also, it has been focusing more on higher margin products, which should continue to expand the footwear retailer’s margins.
Also, Nike is well-equipped for the upcoming sports events in 2014 such as the soccer World Cup and the Winter Olympics. It has been increasing its advertising spend by sponsoring such events in order to increase its revenue. In fact, the retailer has launched uniforms for the French and the Brazilian World Cup teams which use a new technology. These uniforms are called “kits” and are 16% lighter than the uniforms made for the Euro Championships in 2012.
Additionally, the company expects an increase in its future orders, which highlights the increase in demand for the upcoming quarter. This was accompanied with a bright outlook, highlighting the growth prospects of Nike.
Nike has been a great player with a total return of 14% in the last year. Innovation has been the most important driver of revenue. Also, its promotional efforts and concentration on higher margin products have been helpful. Moreover, a bright guidance, an increase in future orders, and 2014 sports events should make Nike even more rewarding. Hence, Nike should be one of the best investment picks for the year. Investors should not ignore this growing company.