Nike third quarter results beat analyst expectations with revenue up 7% to $10 bn and EPS up 9% to $0.87. This was despite challenging headwinds in both the supply chain and a slowdown in Chinese economic growth.
The group experienced growth in most of its extensive geographic footprint, as well as in the merchandise segments, supported by pricing power, resulting in gross profit expansion in excess of 100 bps.
The global strength and demand for the company’s Nike and Jordan brands in footwear and apparel have led to some commentators referring to Nike as ‘’the Apple of sportswear’’.
· A fairly recent change in the business model, in terms, of bypassing the middleman, and targeting the consumer directly via its own stores, selective store partnerships, and digital channel channels, has been positive for Nike.
Sales through digital channels increased by 17%, resulting in improved margins as well as better management of inventories.
Spending on marketing innovation and a launch of new products resulted in operating costs climbing by 13%. This was necessary in terms of its direct-to-consumer strategy, capitalizing on the growth of sneaker culture amongst the kids and youth markets.
The group faced challenges of higher tax rates of 14% vs 11% in prior years, as well as supply chain delays with deliveries of up to six weeks. This should ease as workers return to its Vietnam operations.
An opening up of global economies and the return of team-based sports should, according to management, result in mid-single digit growth in 2022, aided by strong demand and an easing of supply chain constraints.
The portfolio of brands with various price points ranging from premium brands to affordable footwear and apparel give the group a distinct advantage over its peers. The share price, on a forward PE of 30x at a price of $132 per share, reflects the high quality of the company, and patient investors should look to buy into any weakness at these levels.