Some investors may have been disappointed by one thing in Nike's (NKE 0.66%) earnings report this week: The company didn't give a specific forecast for the coming fiscal year -- the period set to begin in June. That's due to outside factors such as inflation, the ongoing pandemic, and the conflict in Ukraine. Instead, Nike said it would offer guidance during the next earnings call.
But this dose of uncertainty isn't a reason to run away from Nike. In fact, Nike reported plenty of positive news -- news that signals even more growth to come. Let's check out three things from the earnings report that make Nike a slam dunk for investors right now.
Image source: Getty Images.
1. Digital growth
Back in 2017, Nike launched a plan to focus on digital and direct sales to consumers. And those efforts are bearing plenty of fruit.
Nike-brand digital sales climbed 19% in the quarter -- and in North America, grew 33%. Importantly, Nike digital sales are making up more and more of total revenue. Nike digital today accounts for 26% of total Nike-brand revenue.
The company said Nike digital is its fastest-growing segment. Why is digital so important? First, because e-commerce, in general, is growing. In the U.S. alone, e-commerce sales will cross $1 trillion this year, Insider Intelligence predicts. Retailers and brands that want to stay on top must make digital a priority.
Second, fans are showing that digital is the way to go. The Nike mobile app won the highest share of digital demand in the quarter -- surpassing Nike.com on mobile. So we've got a positive overall outlook for e-commerce and Nike's success in digital so far. And that should equal more victories for Nike down the road.
2. The wholesale plan
As part of Nike's focus on direct-to-consumer sales, it's reduced its number of wholesalers. Nike has cut wholesale accounts by more than 50% over the past four years. Some investors wondered if Nike would eliminate even its biggest partners, such as Foot Locker. Nike CEO John Donahoe set the record straight this week, saying that Foot Locker "always has been and always will be a large and important partner."
This leads me to Nike's wholesale plan. The company isn't cutting out wholesalers. Instead, it's reduced its base to key partners only. And it aims to connect Nike membership with these stores so that fans will have a consistent experience -- whether they're shopping at a Nike store or a wholesaler.
This is positive because Nike still maintains control over its brand by working with a limited number of partners. And at the same time, Nike has the opportunity to gain new customers who might not have specifically gone to a Nike shop.
3. Inventory supply and consumer demand
Inventory supply has been a challenge for Nike in recent times because the pandemic resulted in closed factories and delays transporting goods from where they're made to where they're sold. But Nike gave us two pieces of good news in its earnings report. First, demand for its products remains high. And second, inventory supply is normalizing in the current quarter.
This means Nike may have the supply it needs to meet demand in the coming weeks and months. In the most recent quarter, Nike missed out on some revenue because it didn't have the inventory in place to meet demand for its products.
Inventory problems are headwinds for revenue growth. So the idea of inventory levels returning to normal is a definite plus. And it's one more reason why investors may run to Nike shares right now.
