Nike (NYSE:NKE) just posted yet another impressive quarter, easily besting analysts' estimates on both revenue and earnings per share. But Nike stock fell more than 2% the following day, as futures orders came in light amid currency headwinds.
Shortly after the release, however, Nike management spent roughly an hour with analysts to elaborate on those results. Here are five insights Nike CEO Mark Parker offered during the call:
1. Nike can keep growing, but it needs to stay on its toes
Delivering results like these requires a sharp focus on our growth opportunities, making disciplined choices to invest in those areas with the highest potential for return. The world of sport is constantly evolving as is the environment in which we operate. That opens up new opportunities for Nike every day. But to identify and capitalize on those opportunities, we have to stay nimble. We need to balance making critical investments with managing risks, whether they be currency headwinds, commodity cost fluctuations, or an evolving political landscape.
As an $83 billion business operating on a global scale, Nike has so far managed to effectively juggle that constantly evolving environment of sports with commodities, ever-changing currencies, and political uncertainty. And while I did point out earlier this year that Nike has some leeway to proactively adjust for these changes -- for example, by temporarily reducing the level of receivables in any given market to account for negative currency changes -- it's a still constant battle for Nike to stay ahead of the game.
2. Don't be alarmed by "weak" futures orders
Excluding global football, total futures order growth this quarter was essentially in line with the numbers we reported last quarter. Specifically, this quarter's futures growth was led by double digit expansion in North America, Europe, and Greater China, with strong demand across multiple categories including sportswear, basketball, and running. On a reported basis, futures grew 7%, reflecting weaker international currencies, particularly the euro, Argentine peso, ruble, and yen.
With Parker's first point in mind, investors simply shouldn't panic about this quarter's slightly weaker-than-expected futures orders. First, they're in no way indicative of a problem with Nike's core business. And second, Parker alluded to something about which Nike Brands president Trevor Edwards later reminded investors in the call: that futures orders excluding currencies grew 11%, even though they're approaching the anniversary of the stellar catalyst they experienced in last year's FIFA World Cup. In retrospect, given that year-over-year comparison, it would have been more surprising if Nike's futures hadn't seemed lighter than usual.
3. E-commerce growth decelerated (and that's OK)
E-commerce continues to deliver, with growth of 65% for the quarter. Our investments in infrastructure are really paying off in this space. We're making it easier for consumers to buy our products, and we're presenting the brand in the most premium way. With opportunity for even more innovation and expansion into new markets, this really is just the beginning of what's possible for Nike.com. E-commerce is, without a doubt, one of our biggest and most important growth opportunities, and it will be for years to come.
For perspective, three months ago Parker told investors that fiscal Q1 e-commerce sales had not only risen 70% year over year, but that its growth had also accelerated sequentially for each of the past five quarters. Parker's assertion that e-commerce rose 65% year over year this time, then, technically marks an end to that acceleration. But at a certain point that's inevitable, and you'd be hard-pressed to find an investor displeased with 65% growth. In the end, what's really important is that they expect their high-margin e-commerce opportunity to continue expanding for "years" as consumers increasingly shift their shopping habits online.
4. Consumers are still front and center
The reason we deliver strong growth across our geographies and categories time and time again is clear. We never lose focus on serving our consumers. As always, these strong relationships are fueled by the power of our brands and the category offense.
This is similar to a point Nike management hammered home in past quarters, but there's a huge reason they repeat it again and again: Nike realizes a one-size-fits-all approach isn't the best way to build relationships with consumers. So it created its "category offense," which essentially involves compartmentalizing the focus of its business for each sporting activity, including running, sportswear, basketball, football, men's training, women's training, and action sports. By doing so, Nike can foster a more intimate connection with each consumer, which, in turn, keeps them coming back to the brand over and over.
5. Innovation (at scale) is Nike's single greatest strength
We introduce game-changing innovation in every category in every global market, and at scale. No one else can deliver innovation like Nike can, and that is our greatest competitive advantage as a company. Our ability to leverage and scale this innovation through compelling concepts and technologies across our portfolio of brands and categories, geographies and distribution channels, and on the world's best athletes and teams, is driving tremendous growth for Nike around the world.
The point here? Many competing athletic apparel companies are perfectly capable of innovating with their products. But Parker insists that Nike sets itself apart given both its ability to do so at massive scale, and to get the world's best athletes to actually use those products. Nike's flyknit boots, for example, could be seen last year on nearly a third of all players participating in the World Cup. What's more, Nike's propensity for regularly signing megadeals to showcase that innovation with top athletic talent serves as a stark reminder of its vast financial resources.