The American market is not exactly sizzling with demand as evidenced by muted holiday spending. Retail sales turned weak during the holiday season, as consumer confidence remained dented due to the harsh winter weather and snowstorms which forced people to stay home. Despite such headwinds, Nike (NKE) managed to perform very well and presented investors a stellar fourth quarter. Its results pleased the Street and sent its stock price soaring. But can Nike continue to run against the odds? Let's check.
A Stellar Performance
Even though the footwear industry has been fighting problems of increased labor costs and unfavorable currency movements, Nike managed to register revenue growth of 11% and clocked $7.4 billion in the quarter. This was due to its efforts of increasing product prices and operational efficiency, which led to a better than expected top line and bottom line. However, margins decreased slightly because of an increase in labor costs.
The key driver for Nike's performance was solid demand in the North American market, which accounts for 50% of its revenue. The region has done well for quite some time now with great revenue growth each quarter. Even sales from the European and the Chinese market grew over last year’s quarter. However, Japan had been a drag. The region is witnessing lower volumes as customers are not willing to spend.
Moreover, this is not the first time that the company is facing such a problem. Earlier, the company was witnessing lower demand in Europe and China, which weighed on its top line. However, the company’s efforts in these regions have helped to revive sales. Also, events such as FIFA World Cup drove sales higher, since the retailer spent largely on marketing its products.
Although Nike’s future orders in Japan have declined, the overall metric grew 11%, mainly because of the American market. A reason behind the growing American demand for Nike’s offerings is its drive for introducing innovative products.
Its new products such as Nike+ and other kinds of sports shoes with new techniques have been doing really well. In fact, Nike has been the most active player in terms of innovating new products. Even peer Wolverine World Wide (WWW) has adopted a similar path and has started focusing largely on innovation. It recently announced its plans to introduce M-Connect year, which has already added to consumer excitement. Additionally, it has been focusing on enhancing its products through providing more color variety, especially in the women's segment. These efforts seem to strengthen Wolverine’s position in future.
Efforts in Line
Nike has also been planning effective strategies to make the competition tougher. It has already divested its Umbro brand and expects to sell Cole Haan soon so that it can focus on its core brands even better.
The footwear player is also eyeing expansion in a big way. Its expansion in Oregon is all set and should be online in a few months. This further expands Nike's addressable market.
Moreover, it plans to expand its global operations through direct-to-consumer operations, which will give exposure to greater markets at lower costs. All these moves, along with its innovation, should enable Nike to perform better going forward.
If you would have invested money in Nike one year back, you would have been sitting on a 23.3% return. Nike has been an exemplary performer with some new moves each quarter. This has made Nike a desirable company. Its strategic initiatives for tackling economic problems and continuous strive for innovation makes it a company worth noting. Moreover, input costs have also come down to moderate levels, making the footwear company’s prospects even better. Investors should definitely take a look at this stock.