Nike See’s Growth. Has Bigger Long Term Plans

Written by: Bob Larson Tennis on 11th December 2013

Nike See's Growth. Has Bigger Long Term Plans

epa03944195 Switzerland's Roger Federer following his two sets to love loss to Spain's Rafael Nadal during a Barclays ATP World Tour semi-finals tennis match at the O2 Arena in London, Britain, 10 November 2013. EPA/ANDY RAIN |

At a recent investor meeting at its world headquarters in Beaverton, Ore., Nike stated it expects to deliver revenues of $30 billion by fiscal year 2015, at the top end of its previously announced fiscal year 2015 target range of $28-30 billion and shared a new fiscal year 2017 revenue target of $36 billion.

The company reaffirmed its long-term financial model of high single-digit revenue growth, mid-teens earnings per share growth and expanding returns on capital.

“Nike, is designed to win. We’ve never been better positioned to capitalize on the opportunities ahead of us,” said Nike President and CEO Mark Parker. “We have a strong management team and we are accelerating our innovation agenda to create products and services that drive growth in the marketplace, deliver exciting retail experiences globally and expand the capabilities of our powerful supply chain. We will continue to serve the athlete, reward our shareholders, manage risk, and lead our industry.”

The Nike brand is expected to be the largest contributor of incremental growth as the company targets fiscal year 2017 revenues of $36 billion.

“The brand is expected to deliver nearly $10 billion in incremental revenue by Fiscal 2017 and our apparel, women’s, and e-commerce businesses will support this growth,” said Trevor Edwards, President of the Nike Brand. “Over the last three years, the brand has grown close to 40 percent and we will continue to innovate and grow by focusing on products and services that capture the imagination of our consumer and help athletes perform at their highest potential.”

In its more developed geographies such as North America, Western Europe and Japan, Nike expects to generate average annual growth at a high single digit rate for the four year period from fiscal 2014 through fiscal 2017, higher than the previous target of mid-single digit growth. The company expects North America and Western Europe to reach over $14 billion and $6 billion, respectively, by fiscal year 2017.

In its developing geographies such as greater China, Central & Eastern Europe and emerging markets, the company stated it expects to grow at a low double-digit average annual growth rate for the same four-year period. Nike expects its emerging markets geography to grow at a mid-teens average annual growth rate and for Greater China to return to growth, reaching an average low double-digit rate of annual growth for 2014- 2017.

“The company’s sales in the Greater China region, which incorporates Mainland China, Taiwan, Hong Kong and Macau, have been inhibited in the past due to high inventory buildup and strong currency headwinds,” wrote the stock analysis firm Trefis. “Nike has made progress in China by clearing its inventories and investing in products more suited to tastes and preferences of Chinese customers. Nike has also invested in productive assets to differentiate its retail locations from a crowded athletic foot ware market in China. Owing to its huge population and growing economy, China offers huge potential for Nike.”

In its Direct to Consumer operations, the Company now anticipates achieving its fiscal year 2015 Nike Brand DTC revenue goal of $5 billion almost a year earlier than planned. The Company also announced plans for Nike Brand DTC revenues to reach over $8 billion by the end fiscal 2017. Over the next four years incremental growth in DTC revenues is expected to be driven by e-commerce sales, which are projected to grow to $2 billion.

“Nike has a strong reputation for coming out with innovative products that meet the latent demands of consumers,” wrote Trefis. “Nike’s product launches, such as FuelBand, have positioned the company in the digital health monitoring market. The wearable FuelBand bracelet measures one’s movements throughout the day and tells how many calories have been burnt through the day’s activities. Other products, such as Nike Air Jordan, Lunar, Shield Flash and Nike’s new smart watch, are also expected to boost its sales in the future.”

The company is also optimistic about its Converse line, which is projected to grow at a mid-teens average annual growth rate, to $3 billion in revenues by the end of fiscal 2017.

However, Trefis is a bit more cautious: “Our current estimate for the impact the Converse brand has on Nike’s valuation is quite conservative, but if the brand manages to obtain a larger market share in the low performance footwear market it, could represent a significant upside to our estimate.”

Nike also stated other financial objectives through 2017 including: Days in Inventory improvement of 5 to 10 days; low double-digit Free Cash Flow growth; annual capital expenditures in a range of 3 to 4% of annual revenues; and increasing levels of annual cash returned to shareholders through annual dividend increases and continued stock repurchases.

Nike is currently trading around $80, well above its 52-week low of $48.40.

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