Nike CEO John Donahoe Sees the ‘Definition of Sport’ Expanding
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Nike Inc. investors breathed a sigh of relief on Friday.
Shares of the active leader jumped up 6.7 percent to $95.62 on Friday as the company topped profit expectations for the first quarter and showed that it continued to keep inventory in control as it seeks to balance its wholesale and direct businesses.
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Diluted earnings came in at 94 cents a share, well above the 76 cents analysts projected, according to FactSet. Sales rose 2 percent to $12.9 billion, less than the $13 billion Wall Street had penciled in.
Ike Boruchow, an analyst at Wells Fargo, summed it up as: “Good, not great…but good enough.”
“The quarter itself was OK — but consider[ing] where sentiment had drifted, we’d call it a win,” Boruchow said. He pointed to the direct business’ growth of 6 percent to $5.4 billion, as a reflection of Nike brand strength, although comparisons against last year will continue to be “lumpy.”
“We remain patiently optimistic as we see cost pressures fading as inventory dynamics normalize,” the analyst said. “Cost inflation/North American wholesale remain headwinds, but this should subside in the second half and we see material bottom-line growth into fiscal year 2025.”
Nike is playing the short game and the long game, trying to gain share today while laying the groundwork for continued growth down the line.
“We have a saying here at Nike,” John Donahoe, president and chief executive officer, told analysts on a conference call. “There is no finish line. We never settle. We always measure ourselves against our full potential. Nike has always been synonymous with sport. We’re at our best when we deliver breakthrough ideas by lining up innovative product with distinctive storytelling delivered through differentiated marketplace experiences. And when we do it well, we expand and grow the market.”
Nike has already done quite a bit.
Revenues last year topped $51 billion, with apparel accounting for $13.8 billion of that, or 27 percent. Since 2019, the company has added about $12 billion in sales and, even with stock declines earlier in the year, still has a jaw-dropping market capitalization of nearly $150 billion. That makes the stock worth something like three Lululemon Ahtleticas and around 50 Under Armours.
Apparel weaves in and out of the strategy, which, of course, is shoe-centric. Zenvy, Go and Universa — Nike “statement” leggings all — got a shout-out on the call for posting double-digit growth in the quarter. Ditto for the brand’s latest Tech Fleece.
Like LVMH Moët Hennessy Louis Vuitton in luxury or Walmart Inc. in the mass market, Nike has scale on its side as it looks to keep expanding.
And to listen to Donahoe tell it, the brand — despite the inventory concerns or weakness in North American wholesale — the company has much larger trends at its back.
“The definition of sport is expanding,” the CEO said. “And so with the movement toward health and wellness and fitness and new big areas of movement like dance, one of my favorites — we’ve had a lot of interaction with breakdancing in the last three months here on [the Nike] campus, seeing some of the elite breakdancers who will compete in the Paris Olympics coming. But dance throughout Asia and other places is a huge market. So we just see an expanding definition of sport where movement has become sport, and we’re at the center of that.
“The movement toward athleisure, right, there doesn’t need to be a trade-off between what you wear on the pitch and at work between comfort and performance and style,” he said. “Athleisure combines all of those, and we are very well positioned to continue to drive that trend.”
Wall Street is watching to see just how close Nike can come to Donahoe’s target, the company’s “full potential.”
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