Nike (NYSE:NKE) recently gave its shareholders a few good reasons to feel cheerful heading into the new year. In fiscal second-quarter results released just before the Christmas holiday, the sports apparel and footwear titan announced accelerating sales gains and improved profitability along with several other impressive operating metrics.
In a conference call with analysts, CEO Mark Parker and his management team explained the drivers behind those wins and why they should support faster growth ahead despite turbulence in the wider economy.
Here are a few highlights from that presentation.
Why Nike's winning market share
We find that the more disruptive we are, the more we grow.
Nike's sales growth shot up to a 9% pace in the key U.S. market, which marked a healthy improvement over the prior quarter's 6% increase. It widened the gap between it and rival Under Armour (NYSE: UA) (NYSE: UAA), which is seeing sales fall slightly. Overall sales rose 10% even as gross profit margin inched higher.
Executives credited their disruptive selling approach, especially when it comes to innovative product releases and the e-commerce channel, for its improving market position. Standout examples of these wins include new releases in the Nike Air footwear platform and advancements in Nike's value chain that allowed faster, more personalized product fulfillment. "We're staying competitive and opportunistic with every shift in the marketplace," Parker explained.
Boosting long-term goals
We now see 30% digital penetration as just a milepost we will pass on our path to the majority of our business being digital.
-- CFO Andy Campion
Nike detailed several key growth targets back in late 2017 that it said would support its expansion over the next five years. Now that the strategy has had some time to play out, it's become more confident about a few of these pillars. The digital sales channel, for one, is growing so quickly that it passed 15% of the broader business ahead of schedule. As a result, the company believes its long-term forecast of a 30% e-commerce segment was likely too conservative and the unit could easily grow closer to 50% or higher over time.
Nike is also getting more success from innovative product releases than it expected, with closer to 80% of growth coming from those introductions. That means its past goal of around 50% underestimated how much consumers are valuing fresh apparel and footwear these days.
The short-term outlook is uncertain but encouraging
We are confident in the sustainability of our growth going forward. While [foreign exchange] headwinds have intensified, we now expect stronger currency neutral growth in [fiscal 2019] than previously planned. And, as we are beginning to gain greater insight into [fiscal 2020], we are seeing continued strong demand.
Nike lifted its full-year outlook on both the top and bottom lines to reflect the improving demand and pricing trends they're seeing both in the U.S. and in key international markets like China and Europe. Executives cautioned that they're seeing more economic volatility that might threaten this forecast.
Still, with consumers responding enthusiastically to its latest releases, and with a packed calendar ahead combined with lean inventory levels, Nike believes it is ideally positioned to pair market-share gains with improving gross profit margin through the second half of this fiscal year and into fiscal 2020. "Our positive outlook is not merely optimism," Campion said, "but rather is founded on fundamental changes in how we operate at Nike."
Demitrios Kalogeropoulos owns shares of Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.