Nike Rallies as CEO Maintains Bullish Views of Its ProspectsBy
Annual sales will climb at a rate in the high single digits
Most of the growth will come from abroad, CEO Mark Parker says
Nike Inc. shares gained after Chief Executive Officer Mark Parker maintained a bullish outlook for the athletic brand, even as he signaled that sales might not be quite as robust as originally thought.
Two years ago, Parker said that sales would increase to $50 billion by 2020, for an annual rate of about 10 percent. On Wednesday, he told investors that the pace would be in the high single digits over the next five years. Earnings per share will gain at a mid-teens percentage, he said, reiterating the rate projected in 2015.
Parker expects growth to get a boost from overseas markets and direct sales to consumers. Over the next five years, 75 percent of sales gains will come from outside the U.S., he said.
“We see the opportunity for new growth,” Parker said. “We’ve sharpened our approach.”
The shares gained for a second straight day on Thursday, rising as much as 4.2 percent to $57.25. The stock’s value has risen about 12 percent this year.
Wednesday’s investor day event -- Nike’s first in two years -- comes at a tumultuous time for the company. Its stock was the worst performer in the Dow Jones Industrial Average last year. And while it’s up 5 percent this year, that’s about a third of the gains in the broader market.
Earlier this year, Nike announced its first major layoffs since the financial crisis. Sales in North America -- its biggest and most profitable market -- have declined for half a year. Total revenue grew just 0.1 percent last quarter.
Using an average increase of 8 percent a year means that sales could top $50 billion by 2022. So Nike’s original goal would come about two years later than predicted. For the current fiscal year, analysts expect revenue to grow by just 4.2 percent.
“You have this aggressive goal and it’s not going to be easy to obtain,” said Brian Yarbrough, an analyst for Edward Jones.
Parker, a veteran of the company who became CEO in 2006, has tried to reassure investors by pointing to Nike’s push to speed up sneaker development. He also highlighted that Nike wants to increase how many items it sells directly to customers through its own stores and websites.
That kind of revenue, which is more profitable than selling to wholesale accounts like Foot Locker, rose 16 percent to $9.1 billion in the fiscal year through May 2017 and accounted for 26 percent of total sales. This shift has also been sparked by the demise of some large retail partners like Sports Authority Inc., which went bankrupt and liquidated last year.
To boost sales directly to consumers, Nike introduced a membership club Wednesday that launches next month. It will offer exclusive products and the ability to buy or reserve items first.
Nike is also trying to lure more shoppers to its website by offering online exclusives. And the brand is expanding to more digital channels, including a partnership to sell Nike gear on WeChat, an online platform in China with almost 1 billion users.
The company is also increasing investments in products such as yoga pants and sports bras to boost its $7 billion women’s wear business. This will include opening athletic pant studios in 5,000 stores on Nov. 1 to highlight new styles for workouts and leisure.
As part of its push to improve the customer experience, Nike will stop selling to some wholesale accounts that it says don’t do a good job of presenting its products. The company didn’t say which retail partners it would move away from, though it showed a picture of what looked like a discounter or a department store.
Nike currently gets 40 percent of its wholesale business from what it calls “differentiated” retailers, and it plans to push that to 80 percent by 2022. That would mean more products going to specialty stores focused on athletic apparel and footwear like Foot Locker. Nike said its rolling out a program later this year at Foot Locker to promote sneaker hunting across the chain’s stores and online.
“We will elevate retail to a premium experience,” said Elliott Hill, Nike’s president of geographies and integrated marketplaces. That will reduce “the heavily promotional environment we see today,” he said.
Despite Nike’s struggles, Parker and his management team have remained upbeat, saying that they can revive growth. And Wall Street appears to be giving them the benefit of the doubt -- with 20 of the 38 analysts tracked by Bloomberg who cover the company rating the shares a buy.
Parker’s record includes the 2010-2015 period in which Nike dominated the U.S., with average annual sales gains of 10 percent. There were no acquisitions -- just organic growth that led to a tripling of the company’s stock price.
One of the biggest knocks against Nike this year has been that its margins have narrowed on more discounting. Foot Locker went so far as to blame slow sales of Nike’s Jordan brand for its lackluster results. To remedy this, Nike will reduce the amount of styles it makes by 25 percent and spend more on marketing than what it does to produce goods.
“Editing out the noise amplifies our strengths,” said Michael Spillane, Nike’s president of product and merchandising.