Nike (NKE, Financial), based near Beaverton, Ore., posted strong first-quarter results. The company is well-positioned to continue to deliver long-term growth that is both sustainable and profitable with tremendous untapped potential.
Nike’s product pipeline is full of incredible innovations. It is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. It is one of the leading athletic apparel and footwear enterprises and has its presence in approximately 190 countries around the world.
The footwear industry is booming right now, and this company has more room to grow. It is one of the most valuable and well reputed brands in the world.
Nike is relentlessly focused on striving toward its full potential –Â by delivering break-through innovation in products and services, by reaching new levels of sustainability, enhancing product performance and by presenting products in compelling experiences at retail.
Strong first quarter result
Revenues for Nike increased by 5% and were $8.4 billion.
Revenues for the Nike brand were $7.9 billion, which marked an increase of 15% on a currency-neutral basis driven by growth in every geography and nearly every key category.
Revenues for Converse were $555 million, an increase of 3% on a currency-neutral basis, mainly driven by strong growth in the United States, partially offset by a decline in the United Kingdom.
Gross margin expanded 90 basis points to 47.5%.
Selling and administrative expense increased by 4% and was $2.6 billion. Demand creation expense was $832 million, down by 7%, reflecting favorable comparisons against higher investment in support of the World Cup in the first quarter of fiscal 2015. Operating overhead expense increased by 10% and was $1.7 billion.
The effective tax rate was 18.4% (21.7% during the prior year quarter).
Net income increased by 23% and were $1.2 billion while diluted earnings per share increased by 23% and were $1.34, reflecting strong revenue growth, gross margin expansion, selling and administrative expense leverage, a lower tax rate and a decrease in the weighted average diluted common shares outstanding.
Inventories for Nike were $4.4 billion, an increase of 10% from the prior year quarter.
Cash and short-term investments were $5.4 billion, $829 million higher than last year primarily as a result of growth in net income and collateral received from counterparties as a result of hedging activities more than offsetting share repurchases and higher dividends.
Share repurchases
During the first quarter, Nike repurchased a total of 5.5 million shares for approximately $588 million as part of the four-year, $8.0 billion program approved by the board of directors in September 2012. As of the end of the first quarter, a total of 86.4 million shares had been repurchased under this program for approximately $6.5 billion at an average cost of $75.70 per share.
Futures orders
As of the end of the quarter, worldwide futures orders for Nike athletic footwear and apparel scheduled for delivery from September 2015 through January 2016 were 9% higher than orders reported for the same period last year and 17% higher on a currency-neutral basis.
Dividend
Nike declared a quarterly cash dividend of 28 cents per share on the company’s outstanding Class A and Class B Common Stock payable on Oct. 5 to shareholders of record at the close of business on Sept. 8.
(Source: Company’s Web site)
Focus on women’s business
Nike is currently focusing on expanding its women’s business segment. Amy Montagne has been appointed vice president and general manager of Nike Women’s. Montagne will be responsible for expanding Nike’s brand position with women and continuing to drive the current momentum within Nike’s women’s business.
“With such an explosion of creativity in sport and a growing lifestyle that seamlessly integrates her run and workout with the rest of her day, Nike has never been better positioned for growth,” said Montagne.
Nike expects its women’s business revenue to grow up to $7 billion by 2017. The company garners about $5 billion annually from its women customers. Nike hopes to push its sales up by 40% in the coming five years.
Nike has already started rolling out women’s stores, like the one opened in Newport Beach, Calif. This store has its personal styling and fitting amenities. “The Nike brand is expected to deliver nearly $10 billion in incremental revenue by Fiscal 2017, and our apparel, women’s and ecommerce businesses will support this growth,” said Trevor Edwards, president of Nike Brand. “Over the last three years, the Nike brand has grown close to 40%, and we will continue to innovate and grow by focusing on products and services that capture the imagination of our consumer and help athletes perform at their highest potential.”
Women all over the world are choosing to work out and run with Nike. The Nike+ Training Club App for women has been downloaded 16 million times and 9 million women have downloaded the Nike+ Running App. The Nike+ digital community is a global ecosystem of inspiration and optimism, using knowledge and community to motivate. By offering athletes at every level a better understanding of themselves, Nike serves as the direct link between the female consumer and her goals.
"Sport and fitness are powering a new lifestyle shift for women around the world,” said Mark Parker, president and CEO of Nike Inc. “Our relationship with our digital community of 65 million women, coupled with great product innovation, is driving our momentum, and we expect to add another $2 billion in revenue to reach $7 billion by FY17.”
Positive attributes
The company has the following positive attributes attached to it:
- Solid pricing power
- Continual innovation
- Investment in research and development
- It has a robust pipeline
- It is constantly evolving
On a concluding note
Today, Nike continues to seek new and innovative ways to develop superior athletic products and creative methods to communicate directly with their consumers. Nike is a hit among the brand-conscious consumers and customers don’t mind paying extra for this brand. It definitely lives up to its slogan, “Just Do It.” Nike’s tremendous financial performance will help the company stay a step ahead of its competitors.
It has already witnessed tremendous success in the North American region. The Asian countries hold tremendous opportunities for this company. With robust innovation, continuing research and development activities, Nike is bound to create shareholder returns.
Nike has always liked being on the top and has diligently worked toward it. Innovation has clearly been a part of its strategy. No wonder Nike is pushing its resources to woo its women customers. It is capturing broader fashion trends in the women’s fashion market.
The incline towards stylish and comfortable clothing, rise in disposable levels of income and a sudden increase in fitness-conscious people will boost the company’s growing popularity. The next few years may see the company shifting its focus toward other stylish accessories like sunglasses, etc. Innovation has always played a key role in Nike’s success.
Working out will never go out of fashion, and women play an integral part in fashion trends. Nike has tremendous growth potential in  the women’s business segment.
