Nike Inc.'s (NKE) strategy that places the consumer at the center of its universe is paying off, as evidenced by its recently-reported fourth-quarter financial results.
On Thursday afternoon, the company reported fiscal fourth-quarter net earnings of 93 cents per share, beating analyst expectations of 51 cents. Wall Street cheered Nike's results, sending its shares 14% higher in early morning trading.
"NIKE's strong results this quarter and full fiscal year demonstrate NIKE's unique competitive advantage and deep connection with consumers all over the world," said John Donahoe, President and CEO of Nike. "FY21 was a pivotal year for NIKE as we brought our Consumer Direct Acceleration strategy to life across the marketplace. Fueled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for NIKE's long-term growth."
Nike has gradually shifted to a direct-to-consumer distribution model from a wholesale distribution model in the last 15 months. NIKE Direct revenues were $16.4 billion, up 32%, driven by 64% growth in NIKE Brand Digital, with all geographies growing solid double-digits. Meanwhile, comparable-store sales rose 4%.
The shift from indirect to direct sales helped Nike expand its gross margin by 850 basis points to 45.8%.
While the athletic apparel giant has transitioned into a more direct sales model, it has also been investing in mobile technology to personalize its products.
Digitalization and personalization are two new additions to Nike's older advantages, which include branding, scale and scope that form "moats" around its business, limiting new competitors' entry into its markets.
These moats allow the company to deliver a solid economic profit as determined by the return on invested capital (ROIC) compared to the weighted average cost of capital (WACC):
| Company | ROIC | WACC | Economic Profit |
| Nike (NKE, Financial) | 19.39% | 6.15% | 13.24% |
| Adidas AG (ADDYY, Financial) | 7.44% | 2.97% | 4.47% |
Disclosure: I own shares of Nike and Adidas.
