Nike’s Stock Surges On Earnings Beat; International Growth And Digital Focus To Drive Value

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Having experienced slow growth over the last few quarters, Nike (NYSE:NKE) reported a strong 4Q 2018 and full year 2018 financial results last week, which caused its stock to surge by almost 11% post the results. The earnings beat was driven by revived demand from the North American markets, and strong international growth. Further, the company’s digital focus also delivered solid results, augmenting its gross margins. The company’s footwear division continued to show notable growth, with its Air Max series and basketball shoes witnessing robust demand. Going forward, we expect Nike’s presence in Greater China and Europe to continue to drive its value in the long term. Besides, the company’s efforts to improve its digital access will enable it to achieve its $50 billion sales target in the next five years.

Feel free to create your own forecast for Nike’s 2019 revenue and earnings using our interactive dashboard for Nike’s 2019 performance.

Key Takeaways From Nike’s 4Q’18 Results

  • Nike recorded a revenue of $36.34 billion for fiscal 2018, representing a rise of 6% on a year-on-year basis. This growth was driven by better-than-expected growth in the North American market, which is the company’s core market. Further, the international markets, particularly Greater China and Europe, continued to deliver strong demand, complementing the company’s top-line growth.
  • The company’s focus on expanding its digital presence through Nike Digital delivered strong results. Further, its footwear business experienced a boost with its Air Max series and basketball shoes seeing continued demand.
  • Nike managed to create demand for its products by investments in new sports marketing assets such as Chelsea, Tottenham, and the NBA as well as by brand marketing in key global sporting events such as the NBA Finals and the FIFA World Cup.
  • However, the positive impact of these initiatives on its bottom line was more than offset by foreign exchange headwinds and the change in the US tax regime.
  • Additionally, Nike announced a new four-year share repurchase program of $15 billion, which will commence once the company’s existing share repurchase program of $12 billion is completed in fiscal 2019. This program, along with the company’s dividend policies, indicates its ability to generate strong cash flows and enhancing shareholder value.

Going Forward

  • Given the reversal of growth in the North American markets experienced in 4Q’18, Nike expects this momentum in Sportswear and Apparel to continue in fiscal 2019. This will drive the company’s top-line in the coming year, since the North American market accounts for a significant portion of its business.
  • Nike also expects its international growth to continue to be robust, with Greater China growing twice as quickly as any other geography.
  • Further, the management believes that its Digital Commerce growth, both owned and partnered, will drive over 50% of its incremental growth over the next five years.

 

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