Sports footwear and apparel retailer Nike (NKE 2.75%) recently reported some impressive financial results for its second quarter of fiscal 2019. Standout metrics for the period included 14% currency-neutral year-over-year revenue growth, a 43.8% gross profit margin, and an outlook for a full-year fiscal 2019 revenue growth rate that could approach the low double-digits in a best-case scenario.
As investors digest Nike's second-quarter results, further insight into the company's recent momentum and management's outlook can be found in Nike's second-quarter earnings call.
Here are some must-see quotes from the call (via an S&P Capital IQ transcript).
Nike's House of Innovation store in Shanghai. Image source: Nike.
Fast-growing digital sales
One key to Nike's better-than-expected revenue growth in its second quarter was momentum in digital sales. Not only is the strength in this channel meaningful, but management is also betting it can soften the blow of a potentially volatile economic environment.
CEO Mark Parker explained:
The marketplace in which we compete is highly dynamic. Consumer expectations are accelerating and the macroeconomy is increasingly volatile. A key part of our strategy to win in this environment is to double down on digital.
The company's digital sales during the quarter were up an impressive 41% year over year, growing faster than all of Nike's channels. But management believes this is just the beginning. "Looking out longer term, we do see the potential to have Digital be the majority of our business," CFO Andrew Campion said during the call.
Nike's expanding gross margin
Helped by momentum in Nike Direct -- the company's Nike-owned stores and its digital sales -- gross profit margin is on the upswing, Campion said:
We are expecting our gross margin to be better in the second half of the year. And as you note in our reported results, it was slightly better than we expected in Q2. We're seeing structural benefits to our margin from our overindexing growth in Direct, which has had very strong momentum, and momentum that's exceeded our expectations, specifically in digital as well as a greater mix of premium innovative product and stronger full-price sell-through.
Nike's gross margin hit 43.8% in Q2. This compares with 43% in the year-ago quarter.
One of the "greatest growth opportunities"
Management is particularly excited about apparel. Parker even referred to it as one of the company's "greatest growth opportunities."
Campion explained the opportunity in more detail:
[A]thletic apparel accounts for a smaller percentage of overall apparel than athletic accounts for within overall footwear. That dynamic is also changing fast. Consumers are increasingly choosing performance and sportswear apparel for more occasions, as it better serves their more active and expressive lifestyle.
Momentum in the category is undoubtedly impressive. Within the company's sportswear business, apparel sales increased 20% year over year in Q1. This is an impressive growth rate considering apparel is Nike's biggest sportswear category.
Momentum in women's
Another key area investors will want to keep an eye on is Nike's women's business, which now accounts for nearly 25% of the company's business globally. Management is betting women's can deliver outsize growth for Nike. "There's incredible momentum for women in sport right now as athletes elite and everyday lead a movement of health and wellness," Parker said, "while driving a strong appetite for athletic footwear and apparel."
With women's accounting for less than a quarter of Nike's business even as women's footwear and apparel markets are larger than men's globally, there's plenty of room for more growth in this key category.
