The leading athletic apparel brand turned in another round of solid operating results in the fiscal fourth quarter. Nike (NKE 1.66%) reported broad-based growth across geographies, footwear and apparel, and the men's and women's categories.
While management didn't knock investors' socks off with guidance, the outlook didn't disappoint, either, as the company expects current demand trends to continue in the year ahead.
Here are three highlights from the quarter that reveal a brand that is continuing to fire on all cylinders.
Sales of lifestyle sneakers are booming, thanks to new designs like the Nike x AMBUSH Air Max 180. IMAGE SOURCE: NIKE.
1. Innovation fuels revenue growth
Said Nike CEO Mark Parker:
Nike delivered strong results in fiscal year 2019, growing 11% on a currency-neutral basis, which outpaced our expectations from the beginning of the year. Our results are further proof that the demand for sport performance and athletic lifestyle product is thriving, and our Consumer Direct Offense is capturing more of that opportunity every day.
Total Nike brand revenue (excluding revenue from Converse and other corporate items) accelerated from 9% in the year-ago quarter to 10% in the most recent quarter. That doesn't sound like much, but it's noteworthy for a business that generated $39.1 billion in revenue over the last year.
What's more, Nike has seen much better performance in North America, where sales growth accelerated from a decline of 2% in fiscal 2018 to an increase of 7% in fiscal 2019. The acceleration was balanced across footwear and apparel, with footwear seeing the biggest jump in growth (no pun intended).
While sales of performance sneakers have been declining in recent years, lifestyle sneakers are experiencing rising demand. On that note, Parker stated that demand is so strong for Nike AIR that it is "outpacing supply."
Product innovation, including the React Element 55, 87, and Presto, in addition to AIR, drove more than 20% growth in sportswear in the fourth quarter. Parker said, "We see great opportunity for both platforms to continue to carve out new space in the lifestyle market."
2. Growth in women's sportswear
One significant opportunity for Nike is growing the women's category, which makes up less than a quarter of total revenue. The women's business has been growing slightly faster than men's lately. On this front, here's what Parker had to say:
It's hard to overstate how important this year has been to the evolution of the women's offense at Nike. The business grew double digits in fiscal 19 accelerating in the back half of the year. Our momentum in women's is a great example of how our renewed focus is really moving the needle through thoughtful design, powerful brand messages, and digitally led distribution.
An example of how Nike is winning with women is the Air Max Dia, a women's sneaker that was recently a best-seller and helped drive double-digit growth in the women's category last quarter.
The Nike Air Max Dia. IMAGE SOURCE: NIKE.
Parker also explained how digital is a vital tool to connect with women and grow the business overall:
We continue to find that when we present product in more future-forward ways, we're able to take the female consumer someplace new. And they're responding. Our women's business in Nike Direct and through our digital platforms continues to outpace our performance in wholesale channels.
3. Digital momentum
Sales through Nike Direct (including company-owned stores) grew 16% in fiscal 2019 on a currency-neutral basis, while sales through digital platforms, like the SNKRS app and Nike.com, were up 35% year over year.
Nike now has 170 million members in the Nike Plus ecosystem, which is ahead of management's expectations. The SNKRS app has been incredibly valuable in fueling Nike's comeback in footwear recently. Last year, SNKRS saw tremendous growth, with revenue more than doubling, reaching more than $750 million, or 20% of Nike's digital business.
The Nike app provides the complete shopping experience on mobile for the brand, and growth has been incredibly strong here, too. Revenue increased at a triple-digit rate, and Nike is "just starting to roll it out globally," as CFO Andy Campion said. The Nike app will launch in China in fiscal 2020, the fastest-growing region for Nike, with revenue climbing 24% last year adjusted for currency.
Looking ahead
Nike's outlook points to current demand trends continuing through the year ahead. Revenue is expected to be up in the high-single-digit range on a reported basis, slightly up from fiscal 2019. Management also expects balanced growth across all geographies.
More importantly, gross margin should improve by half a percentage point, thanks to Nike's strategy to release new products faster and generate higher full-price sell-through. Management said margin expansion would be even higher if not for investments to enhance the supply chain and inventory management.
The market's response was muted following the earnings announcement. The stock has had a good run over the last few years and sports a premium valuation, so a lot of Nike's business growth may already be priced into the stock price for now. But if Nike delivers on analysts' expectations for earnings to grow about 20% this year, the stock could still have room to run, both in the short and long term.
