Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Nike Breaks Down Another Record Quarter

By Demitri Kalogeropoulos - Jul 2, 2019 at 7:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The sneaker and sports apparel powerhouse sees no signs of a growth slowdown ahead.

Nike's ( NKE 0.14% ) growth rebound is still gaining steam. The athletic apparel and footwear giant recently revealed accelerating sales in the U.S. market, as well as rising profit margins as consumers enthusiastically shelled out for its latest product releases. The results closed the books on Nike's first full year of a strategy that's delivering robust returns for investors.  

In a conference call with Wall Street analysts, the management team broke down the key factors behind Nike's market share gains, and the reasons behind their optimism about the coming fiscal year. Here are a few highlights from that presentation. 

A male jogger wearing sneakers runs on a running trail.

Image source: Getty Images.

Jumping out of the gates

"For the full year, revenue grew 11% on a currency neutral basis, and 10% in the most recent quarter. At Nike's scale, that is roughly $4 billion of incremental revenue in just one year." – CFO Andy Campion

Fiscal 2019 represented the first full year of a growth strategy that management calls its "consumer direct offense." The results were strong across the board. Sales growth landed at 11% for the year and for 10% in the most recent quarter. Both figures surpassed the target of range high single-digit growth that executives had outlined. Those gains put further distance between it and peers such as Under Armour ( UA 0.10% ) ( UAA -0.13% ), which grew sales 4% in 2018.

Importantly, Nike's growth sped back up in the U.S. this quarter, with gains accelerating to 8% from 7%. Under Armour's comparable figure declined to 3%. Nike credited its new product launches, supplemented by a robust e-commerce strategy, for keeping it well ahead of rivals.

Healthy profit margins

"Gross margin expanded 80 basis points in Q4, also exceeding our guidance. Margin expansion was driven by strong full-price sales, enhanced product profitability and Nike Digital growth. For the full year, gross margin expanded 90 basis points." – Campion

Despite worries about rising costs, Nike posted higher gross profit margins for the quarter and fiscal year. Several positive factors underlaid that win, including a supply-and-demand balance in the U.S., and a shift in sales toward newer products and the direct-to-consumer channel.

Executives see room to boost profitability for years to come, too, as they keep shortening the development time for new footwear and apparel products, and as e-commerce becomes a bigger part of Nike's business.

A marathon, not a sprint

"We expect another year of broad-based growth with all 4 geographies delivering on our long-term financial model." – Campion

Nike's fiscal 2020 outlook calls for a third consecutive year of strengthening results. Sales are forecast to again rise by just under 10%, including significant foreign currency exchange headwinds. Healthy growth in the U.S. should be supplemented by even faster gains in markets like Latin America and China.

Gross profit margin is expected to rise about about half of a percentage point, a light gain compared to last year's 80 basis points of growth. Yet this figure is being held back by temporary factors such as Nike's spending on supply chain improvements, management said. Accounting for those issues shows how the company is in prime position to flex its financial muscles.

Nike is likely to push more aggressively in areas like women's apparel and footwear this year. The Chinese market will get lots of management's attention, too, as they work to improve on the extra $1 billion of revenue it added to the business just in fiscal 2019. Overall, Nike's outlook is for market share gains that, combined with rising profitability, should power strong returns for its shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$170.24 (0.14%) $0.24
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$23.47 (-0.13%) $0.03
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UA
$19.98 (0.10%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
640%
 
S&P 500 Returns
139%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.