ii view: Nike sales buoyed by home market

Growing digital sales and building on its consumer direct relationships. We assess prospects for this sporting goods giant. 

Third-quarter results to 28 February

• Revenue up 5% to $10.87 billion
• Earnings down 3% to $0.87 per share
• Net income down 4% to $1.4 billion
• Quarterly dividend up 11% to $0.305 per share

Chief executive John Donahoe said:

"Nike’s strong results this quarter show that our Consumer Direct Acceleration strategy is working, as we invest to achieve our growth opportunities. Fuelled by deep consumer connections, compelling product innovation and an expanding digital advantage, we have the right playbook to navigate volatility and create value through our relentless drive to serve the future of sport."

ii round-up:

Sports clothing and footwear maker Nike (NYSE:NKE) reported better than expected quarterly results, although decided to offer no outlook guidance for the year ahead given the war in Ukraine and ongoing supply chain challenges. 

Third-quarter earnings of $0.87 per share beat Wall Street forecasts of $0.71 per share, helped by ongoing demand across its home North American market. 

Nike shares rose by more than 5% in after-hours US trading having fallen by around a fifth year-to-date. Shares for UK sporting goods retailer JD Sports Fashion (LSE:JD.) have fallen by close to 30% over that time and luxury goods retailer Burberry (LSE:BRBY) is down by around 5%.

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Overall, Nike revenues of $10.87 billion surpassed analyst forecasts of nearer to $10.6 billion, with North America sales rising 9% to $3.88 billion. That more than counterbalanced a 5% fall in Greater China to $2.16 billion where pandemic restrictions remain high. 

Sales for its second-biggest region Europe, the Middle East and Africa rose 7% to $2.78 billion. Revenues across its combined Asia Pacific and Latin America region grew 11% to $1.46 billion. 

Nike’s strategic push to enhance its own consumer direct sales continued to stride ahead. Direct sales to consumers grew 15% to $4.6 billion. Overall digital sales expanded by almost a fifth, led by a one-third increase in North American digital sales. 

Sales for its separated-out Converse brand proved virtually flat from the year ago quarter at $567 million. The quarterly dividend rose 11% from the year ago quarter to $0.305 per share. A total of $1.2 billion worth of shares were repurchased under its share buyback programme. 

ii view:

Nike is a designer, distributor and retailer of athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. It is headquartered near Beaverton, Oregon in the USA. Its brands include Nike itself, and Converse, a wholly-owned subsidiary. 

North America remains its biggest market, accounting for around 36% of sales, followed by Europe and the Middle East at around 27%, China at close to 20% and Asia Pacific and Latin America the balance. Both dividends and share buybacks currently contribute to shareholder returns. 

For investors, elevated inflation and a cost-of-living crisis for many consumers globally now needs to be considered. The war in Ukraine may also dampen consumer appetite to spend, while the pandemic and its ongoing impact in regions such as China also needs to be remembered. 

On the upside, direct sales to consumers continue to expand, adding to profit margins if Nike bypasses the external retailer. The world’s love affair with sport and its pool of superstars shows little sign of fading, while returns to shareholders remains a management focus. In all, and with the consensus analyst estimate of fair price currently standing at close to $1.70 per share, room for longer-term optimism persists.

Positives: 

• Growing online sales
• A progressive dividend policy

Negatives:

• Uncertain economic outlook
• Environmental concern and use of hazardous chemicals

The average rating of stock market analysts:

Buy