Consumers continue to flock to Nike despite its recent string of controversies.
The Oregon-based footwear, apparel and accessories company is no stranger to drama. This year alone Nike has dominated headlines with the departure of former brand president Trevor Edwards following reports of inappropriate behavior, more than one lawsuit against the company stemming from the #MeToo Movement and the kerfuffle surrounding its Colin Kaepernick ads. But consumers don’t seem to mind.
Shares of Nike Inc., which closed down 2.12 percent on Thursday to $67.51 percent, surged nearly 8 percent after hours after beating analyst expectations.
The company reported top-line revenues for fiscal-year 2019’s second quarter, or the period ending Nov. 30, 2018, of $9.4 billion, up 10 percent from the quarter last year, which was at $8.5 billion. Bottom-line income also rose 10 percent to $847 million, up from $767 million the year before.
“We’re incredibly energized about 2019 — with a full innovation pipeline; the most personal, responsive retail experiences in the industry and a supply chain that’s delivering speed at scale,” Mark Parker, chairman, president and chief executive officer of Nike said in a statement.
Some of the controversies may have even helped strengthen consumer loyalty, said John Kernan, managing director and senior research analyst at Cowen & Co. He pointed out that an incident like the Kaepernick controversy in the first quarter helped solidify Nike’s bond with consumers aged 18 to 34 years old.
“Nike’s most valuable customers are largely ethnic, non-white, African-American, Hispanic and young,” Kernan said. “They appreciate the stance Nike took with the ‘Just Do It’ campaign.”
Sales of footwear and apparel in North America, still Nike’s largest consumer market, rose 8 and 10 percent respectively, in the most recent quarter.
“Most importantly, the products are better than what a lot of the competitors are offering,” said Jay Sole, an analyst at UBS, who pointed out that consumers are willing to pay premium prices for Nike sneakers, like the Nike Air Max 270, Air VaporMax and Air Jordans, which retail for around $200 a pair.
And don’t expect the product assortment to run dry anytime soon. During Thursday night’s conference call, Parker said Nike will extend its footwear assortment beyond just running and basketball in the coming year to include more lifestyle sneakers across a variety of price points.
Nike also plans on extending its apparel business, one of its fastest-growing categories. Parker said Nike will introduce new products for women’s sport apparel and men’s yoga.
Meanwhile, sales in China also continue to rise, with footwear and apparel sales up more than 20 percent year-over-year during the quarter as the company continues to leverage a global omnichannel, getting products to consumers around the world faster.
Roughly two-thirds of Nike’s distribution methods are through wholesale channels, but Nike’s direct-to-consumer model continues to grow.
“Unlike most of retail, Nike is a beneficiary of e-commerce disruption primarily through its higher-margin direct-to-consumer business, which we forecast will drive [roughly] 85 percent of Nike’s growth over the next four years,” Lauren Cassel, equity analyst at Morgan Stanley, wrote in a recent note. “Nike is still in very early innings of this [direct to consumer] transformation.”
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