Nike (NKE) reported financial results for the fourth quarter of fiscal 2019 on Thursday.
Fourth quarter revenue increased 4% to $10.2 billion, with a strong headwind from foreign exchange (constant currency revenues increased 10%). For the year, revenues increased 7% (and 11% on a constant currency basis) to $39.1 billion, with high-single digit growth in North America and double-digit constant currency growth in EMEA, APAC and Greater China.
The company’s Direct (non-wholesale) revenues increased 16% for the year to $11.8 billion, accounting for 30% of the company’s business. This was driven by a 35% increase in digital revenues (e-commerce) and a 6% increase in comp store sales. As noted on the call, sales through the Nike app in North America grew triple digits last year, with the app expected to launch in China and 13 markets in EMEA during the first half of fiscal 2020. In addition, the company’s SNKRS app hit a run rate of $750 million in revenues in the fourth quarter – compared to just $70 million three years ago (SNKRS doubled its revenues and its monthly active users this year). Clearly Nike has a lot of momentum in its Digital business right now.
From a geographic perspective, Nike benefited from another strong year in Greater China, where revenues increased 21% (up 24% in constant currencies) to $6.2 billion. This was the 20th consecutive quarter of double-digit growth for Nike in China. As shown below, the company’s business in the region has more than doubled over the past four years:
It’s also worth noting that this outsized top-line growth has an even larger impact on Nike’s profitability: The company’s operating (Ebit) margins in Greater China were 38% in 2019 – compared to 25% Ebit margins in North America. On the conference call, CEO Mark Parker discussed the importance of the region to the company’s future:
“Our focus on the Triple Double is especially important in an environment like we’re in right now where geopolitical dynamics have led to trade tensions and foreign exchange volatility. We’re certainly mindful of the risks, and, more importantly, we’re in command of the conditions that are under our control. And that’s serving the consumer and managing the levers we have, delivering great product, engaging experiences and building our brand. Our Greater China business is the blueprint for how all those dimensions come together. We added more than $1 billion of incremental growth in the geography this past year. We are and remain a brand 'of China, for China.' Nike is proud of the investments we’ve made and the relationships we’ve developed in this energizing marketplace -- and we’re confident that we’ll continue to grow sport and our business in China for decades to come.”
For the year, pre-tax income increased 11% to $4.8 billion, with the per-share result benefiting from a 2.5% decline in the share count as well (the company spent $4.3 billion on repurchases in fiscal 2019 at an average cost of $79 per share). All-in, Nike reported diluted earnings per share of $2.5 in fiscal 2019.
Looking at a longer time horizon, we can see that Nike has delivered strong financial results over the past decade, with diluted earnings per share increasing at a roughly 10% CAGR:
Conclusion
Nike is firing on all cylinders right now. It is making life difficult for smaller competitors like Under Armour (UA). But I think the company's strong results are largely reflected in the stock price: At $85 per share, the stock trades at 34x trailing earnings.My financial model does not support buying shares at these levels. But I would love to own this company at the right price.
Disclosure: None.
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