- Nike recorded 10% annual revenue growth in fiscal 2014,
with a 120 basis points y-o-y expansion in gross margins.
- For the quarter, revenue growth was 11%, with gross margin
up by 170 basis points on a year-on-year basis.
- Strong growth in North America and Europe helped the
company achieve this performance. EBIT for North America grew
at 14%, a faster rate than the revenue growth.
- Revenue for Nike Brands from the DTC channel grew 22%
driven by growth in comparable store sales and online sales.
The company has achieved its $5 billion in annual revenues
target for the DTC business a year earlier than targeted.
Sports giant Nike (
) recorded another strong quarter in Q4 2014, with revenue rising
by 11% annually to $7.4 billion. Gross margin expanded by 170 basis
points y-o-y, helped by higher average selling prices and continued
growth in the higher margin direct-to-consumer (DTC) business,
which were partially offset by an increase in input costs and
unfavorable currency translations. The company's strong performance
in Q4 2014 was underscored by high growth in North America, Western
Europe and Emerging Markets(excluding China). High demand in
running, basketball and football categories continue to fuel the
growth momentum for Nike. Sales of Nike brand apparel and sporting
equipments fell in China, resulting in a 12% decline in earnings
before taxes from the Greater China region. Nike Brand DTC was up
27% for the quarter, putting annual revenues for the segment beyond
the $5 billion mark, close to 20% of the company's total
For the full fiscal year 2014, revenue from continuing
operations was $27.8 billion, up 10% compared to the previous year.
Gross margin expanded by 120 basis points year-on-year largely due
to higher average selling prices and a higher contribution of the
DTC business to the company's overall revenues. Late last year, the
company announced a fiscal year 2017 revenue target of $36
billion.As part of this target, the company hoped to raise DTC
revenues to $5 billion by fiscal year 2015, but thanks to strong
results in its inline and factory stores as well as online, it has
achieved the target a year earlier.
We are in the process of revising
our $68 price estimate
for Nike's stock.
See Our Full Analysis For Nike
North America Continues To Be Strong
Nike recorded its most profitable year ever in North America
with reported earnings before interest and tax rising faster at 14%
than reported revenues(10%). For the fourth quarter, North America
revenue also grew 10% led by double-digit growth in basketball and
global football. DTC revenue grew 21% driven by an 8%
increase in comparable store sales and significantly higher
revenues from its e-commerce website.
The remarkable performance in this geography shows the strength
of the Nike brand as it has managed to capture the growth in the
market and take market share from an ever rising number of
competitors at the same time. The company is a market leader in the
basketball and running categories, and leverages the insight gained
from those segments to capture the significant growth opportunities
in areas like e-commerce, apparel, women's and young athletes
businesses. Nike applies discrete strategies to individual
segments, identifying the opportunities in each category and
applying different strategies to capitalize on these opportunities,
instead of applying a one-size-fits-all strategy common to the
China Still Sluggish
In line with our expectations, sales in China only grew by 2%
for the quarter. For the full year, revenue growth came in at 3%.
At $2.6 billion in annual revenues, China contributes less than 10%
to the company's top line. Given that China is one of the largest
markets for athletic footwear and apparel in the world, the
geography provides a significant growth opportunity for Nike. We
have already written about the problems Nike faces in establishing
a strong foothold in this market. (See:
Nike's China Problem
Previously beset by the accumulation of unsold inventory and
indifferent response to new product launches, Nike decided to reset
its strategy for China in fiscal 2014. The company believes that it
has made good progress on that front and expects to achieve
sustainable double-digit growth from the region soon. In 2014, Nike
tested new merchandising concepts in China, which drove comparable
store sales for the quarter up 22%. The sports retailer also
changed the assortment of inventory it sells to wholesale partners
in China, undertook the re-profiling of multiple stores in the
region and reduced the levels of inventory considerably. However,
these newly re-profiled stores only form a small part of Nike's
business in China, and any profitability gains made from these
stores are likely to be offset by the expenses the company
undertakes in the re-profiling of the rest of its stores.
Therefore, we do not expect the region to be profitable before
interest and taxes anytime soon.
Europe Continues To Surprise
Nike brand revenues in Western Europe grew by 18% (in constant
currency terms) in Q4 2014, further confirming that Nike is gaining
ground over market leader Adidas. Similar to the operations in
China, Nike undertook a rebasing of its operations in Europe two
years ago. The company introduced shop-in-shop concepts at sports
retailers like JD Sports, Foot Locker and Intersport, in addition
to trying out new store concepts in its own retail stores and
online. The strategy has been successful, with Nike now the leader
in the footwear market in all countries key to its business in
Europe and is the preferred sports brand in each of the top 10
cities in Western Europe. For the full year, earnings before
interest and taxes grew by a third in Western Europe, more proof
that the company is gaining significant returns on its investments
in the region. Nike brand revenues in Central and Eastern Europe
saw 12% annual revenue growth in Q4 fueled by high demand in
Russia, Poland, Greece and Turkey. We expect high growth in this
market in fiscal 2015 due to growing economic prosperity in the
region. Recent futures order growth at 14% (in constant currency
terms) supports our outlook.
Outlook for Q1 fiscal year 2015
The company issued the following guidance for the first quarter
of fiscal 2014:
- Revenue to rise at a high single-digit rate, driven by events
such as the FIFA World Cup in Brazil and continued growth in
North America and Western Europe.
- Q1 gross margin to be 75 basis points higher than previous
year due to a shift in mix to higher margin products as well as
ongoing strength in the higher margin DTC business.
- SG&A expenses will increase by 30% on account of higher
marketing expenses related to the FIFA World Cup.
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