Nike is ready for another decade of domination

There maybe no big brand stock that works better than Nike (NYSE: NKE).

Shares of the sportswear giant just climbed double digits on a flawless fourth quarter earnings report. Results easily exceeded expectations, with revenue surging 96% from the lockdown-hit quarter a year ago to $ 12.3 billion, or up 21% from the fourth quarter of 2019, showing that society is well ahead of pre-pandemic levels. It also easily topped analysts’ estimates at $ 11 billion.

Nike’s direct and digital performance stood out with direct sales up 73% to $ 4.5 billion, accounting for over a third of total revenue, and Nike brand digital sales increasing 41% from the previous year and 147% from two years ago.

Profits also surged on the move to higher margin direct sales, with Nike reporting earnings per share of $ 0.93, easily beating the consensus to $ 0.51.

The forecast was equally impressive, as management called for double-digit revenue growth for this fiscal year to more than $ 50 billion, ahead of estimates to $ 48.5 billion, and improved performance. margin, although she did not set a specific earnings per share target.

The company was also confident enough to provide direction through fiscal 2025, showing that it will continue to reign supreme in the world of sportswear.

The view in front

By 2025, Nike called for an annual growth of around 10% and an improvement in EBIT (earnings before interest and taxes) to a high level, against an EBIT margin of 15.5 % Last year. Based on these calculations, the company would reach $ 65.3 billion in revenue by 2025, up about 50% from a year ago, and its operating profits would rise to 11.8 billion dollars, up 70% from $ 6.9 billion last year.

Nike’s strength in live and digital, the strategy it calls Consumer Direct Acceleration, should fuel this growth. Management said Nike’s direct sales, which come from its own stores and digital properties, will account for 60% of revenue by 2025, up from nearly 40% today, while digital owned and partnered sales will increase. at 50% with digital sales from Nike. reaching 40% of total turnover.

This strategy, which stems from the Consumer Direct Offense program that it announced in 2017, has helped consolidate a number of its competitive advantages. It brought him closer to the customer and gave customers more ways to engage and buy with Nike. It has strengthened its relationships with key business partners such as Walk-in locker, who Nike asked to provide differentiated experiences for Nike products. Through apps like Nike Training Club and Nike Run Club, it also built an audience of 300 million members, which generated $ 3 billion in revenue in the last quarter.

Nike’s mobile apps also continue to be the winners, with SNKRS showing more than 90% growth in demand in the fourth quarter and 80% growth in the number of monthly active users, management said on the call. on the results. It also extended the Nike mobile app to 10 new countries in the last quarter.

At the same time, Nike’s execution with its new strategy came as its closest rivals faltered. Under protection (NYSE: UAA) (NYSE: UA) It once seemed like a legitimate challenge for the industry leader back in the days when Steph Curry was the biggest star in the NBA, but Curry’s iconic shoes never took off and his star has since risen. faded. Meanwhile, a number of unforced errors have also dampened the company’s growth as founder Kevin Plank commented favorably on former President Donald Trump during a controversial time, damaging the brand. Plank stepped down as CEO, and Under Armor’s once impressive growth has yet to return.

adidas (OTC: ADDYY) has continued to perform well as a stock in recent years, but the company’s revenue growth rate has lagged behind that of Nike and it no longer appears to be the threat it once was in the running and basketball. The boom he enjoyed in the mid-2010s when vintage sneakers like the Adidas Superstar topped the ranks has come true. The graph below shows how Nike has performed against its two biggest rivals since the direct-to-consumer infringement was announced in 2017.

NKE data by YCharts

It’s also worth pointing out that Nike’s annual sales for women are about double that of women. lululemon athletics (NASDAQ: LULU), the pioneer of athleisure, and women have become a major growth category for Nike, with sales surging 22% to $ 8.6 billion.

Long-term success

It’s no coincidence that Nike is ready for another decade of domination. The title has been a heavyweight since its IPO in 1980, with an increase of nearly 100,000%. In other words, $ 1,000 invested in the stock would then be worth almost $ 1 million today.

The Nike industry is not a fast-changing industry, and with an unmatched brand, a history of innovation, vast marketing power and an unrivaled roster of sports stars, the king of sneakers will not be ousted from his. throne so soon.