hnnhcronin Everyone’s favorite sneaker manufacturer is finally achieving the recognition from investors that it deserves. The sneaker craze does not seem to be ending, as teens and millennials choose $500 sneakers over $500 high heels; sneakers have become more than athletic wear–they have evolved into high fashion. While there is a lot of competition in the shoe manufacturing industry, Nike has begun to overtake competitor Adidas, which experienced a massive renewal in popularity with its revival of classic clean white “Stan Smith” sneakers, the style which originally debuted in the 1960s. Nike has combated Adidas’s apparent lead with its new generation Air Force 1 shoes that come in a range of styles (high top, low top, etc) and colors; while all Air Force 1s have the same basic structure, some styles are more embellished than others, so Nike is able to cater to those who prefer minimalist shoes and those who favor a statement shoe. Not only has Nike achieved massive sales success in the footwear sector, but also in the activewear clothing section.
Before the December 20th earnings report was released, the Nike stock was already up 16.8% for the year. However, the quarter 2 earnings report for fiscal 2019 really sent the stock rallying. Analysts predicted an EPS of $0.45, but the company reported diluted earnings per share of $0.52, which is up 13% for the quarter. Net income increased 10% to $847 million. The key driver of Nike’s growth this year is its digital initiative with both the Nike and Converse brands that emphasizes a more personal and direct method of communication with customers. Online sales soared across all geographic locations. Nike’s Triple Double Campaign is an effort to increase the percentage of revenue coming from the Nike app and decrease the percentage of revenue coming from wholesale partners, which would effectively eliminate the need for these retail middle men. Additionally, the Nike Plus customer membership program collects data relating to individual purchases and preferences, better allowing Nike to cater to the needs of every individual shopper.
Nike is continuing the progress of its $12 billion share repurchase plan unveiled in 2015. In the 2nd quarter, the business repurchased 16.1 million shares for a total of $1.3 billion. The repurchasing of shares gives Nike more flexibility in making decisions that may unsettle investors in the short term. Additionally, with more shares under the control of Nike, there are less shares outstanding, which increases the earnings per share.
Although Nike’s stock is not as highly valued as certain competitors, such as Lululemon, it is performing well as of recent, and management expects the recent growth surge to continue throughout 2019 because of the continual release of trendy new athletic wear and shoes and the focus on all things digital, from online sales to social media campaigns, featuring athletes from the controversial Colin Kaepernick to olympic runner Shalane Flanagan.