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Supply chain innovation sees Nike FY profit soar



Product innovation and increasing digital capabilities are continuing to drive global demand at Nike Inc, helping the US sporting goods giant higher sales and a 108% rise in full-year profit.

For the 12 months to 31 May, the Beaverton, Oregon-based company reported net income of US$4.03bn, more than doubling the $1.93bn reported the prior before. Nike said the rise was driven by strong revenue growth, gross margin expansion, a lower average share count and a lower tax rate, which was partially offset by higher selling and administrative expense.

Gross margin increased 90 basis points to 44.7%, on the back of higher average selling prices, impacts from foreign currency, and growth in Nike Direct – although these gains were partially offset by higher product costs.

Total revenues in the 12-months, meanwhile, rose 7% to $39.1bn, up 11% on a currency neutral basis and 7% on a reported basis. Sales for the Nike brand grew 11% to $37.2bn, while Converse revenues rose 3% to $1.9bn as double-digit growth in Asia and digital was partially offset by declines in the US and Europe.

For the fourth quarter, however, Nike reported a 13.% drop in net income to $989m from $1.14bn a year earlier. Gross margin was up 80 basis points to 45.5%, and total revenues rose 4% to $10.18bn, up 10% on a currency neutral basis and 4% on a reported basis.

Quarterly sales for the Nike brand grew 10% to $9.7bn on a currency neutral basis, driven by growth across Nike Direct and wholesale, key categories including sportswear, Jordan and basketball, and continued growth across footwear and apparel. Revenues for Converse, however, were flat at $491m, mainly driven by double-digit growth in Asia and digital which was offset by declines in the US and Europe.

In the group's North America business, sales were up 7% to $4.17bn, while sales in Europe, the Middle East and Africa were flat at $2.46bn. Greater China sales, meanwhile, surged 16% to $1.67bn, while sales in Asia Pacific and Latin America slipped 4% to reach $1.38bn.

"FY19 was a pivotal year for Nike as we continue to bring our Consumer Direct Offense to life throughout the marketplace," says Nike CEO Mark Parker.

Outlined in 2017, the Consumer Direct Offense is fuelled by the brand's 'Triple Double' strategy: 2X Innovation, 2X Speed and 2X Direct connections with consumers.

"Our distinctive innovation and digital advantage led to accelerated growth across our complete portfolio, while our brand fuelled deeper relationships with consumers around the globe," Parker adds.

Cowen Research analyst John Kernan notes: "Nike is accelerating supply chain and digital investments, opening new opportunities for faster speed to market and improved inventory efficiency, leading to margin expansion. NKE is launching RFID chips across all footwear and apparel in Fall 2019, dramatically improving inventory accuracy and visibility. This will be a key capability in both NKE's doors and retail partner supply chains. The SNKRS app remains an opportunity to launch new innovation directly to members. 70% of core product will be refreshed in the next two seasons bringing innovation to lower price points."

Earlier this year Nike elaborated on how its digital focus is helping to drive growth.



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