The athletic footwear and apparel retailer Nike (NKE, Financial) is well known for its innovation. This is one of those handful of companies which are unaffected by the macroeconomic conditions and continue to perform well. This was once again proved right when the retailer reported its first-quarter numbers recently, which beat the Street’s expectations, sending its share price north. Let us take a look.
The numbers
Total sales increased 15% to $7.98 billion as compared to the previous year. This is higher than the analysts’ expectations of $7.80 billion. Higher demand across all product categories resulted in a higher top line. Also, revenue from Nike brand, which makes more than 90% of the total revenue, surged 15% over last year. Even the Converse brand registered growth with a 16% increase in revenue, driven by higher sales in Europe and Asia.
China, which was once an area of concern for Nike, is now doing extremely well. This is mainly because of the company’s strategic efforts that made Nike’s running and basketball categories quite popular. In fact, these two areas are the point of focus, and customers want more running and basketball footwear.
The online business also exhibited great growth as indicated by 22% higher direct-to-customer revenue. Also, the comparable store sales increased 11% during the quarter.
The gross margins expanded by 170 basis points to 46.6%, and the bottom line jumped 23% over last year. Thus, earnings per share stood at $1.09 per share, much higher than the estimate of $0.88 per share. Efficient management of costs and higher share repurchases increased the bottom line.
Key drivers
One of the primary drivers of the top line was the FIFA World Cup which drove revenue higher. The retail ramped up its marketing efforts during the World Cup, which attracted a lot of customers. Further, Nike’s Flyknit range of sneakers resonated well with the customers.
Moreover, Nike’s focus on women’s products resulted in higher sales. Since females also want to wear athletic apparel, the athletic retailer introduced a women-oriented line of products and charged more for it. However, people are willing to spend on it, leading to a 23% rise in its sales. In fact, women’s products make 29% of the total revenue, and Nike holds 31% of the market share. Tempo shorts were the best-selling item in this category.
Strengths in focus
Nike is looking forward to a lot of efforts, which is expected to drive sales. It plans to continue to spend a lot on marketing and research and development activities. This is important since Nike’s believes in continuous innovation and the new products need to be marketed well. Its innovative new products such as Lunar, Nike+, and Flyknit have been quite successful and should continue to benefit the retailer.
Also, it plans to take part in the launch of Apple's (AAPL, Financial) iWatch, which should be helpful. Further, it has partnered with athletes such as LeBron James and Kobe Bryant, which lured many customers to its products.
The footwear retailer is also looking forward to the Olympics in Brazil, which is to be held in 2016. This should help the company market its products, just as it did in the World Cup. Also, the earnings for the year are expected to grow 20% over last year, which is impressive.
Conclusion
Nike is indeed one of the best players in the footwear industry. Its innovative efforts, new technology, ramped-up marketing and online sales have been instrumental in driving the top line higher. Also, its outlook for the year looked impressive, and future orders grew 14%. Therefore, Nike looks like a great bet for the future.
