This month we undertake a quick review of Nike Inc. one of the best performing companies in the US in 2019 and a core holding within the Aoris Fund discussed above.
We all know Nike from its ubiquitous swoosh logo, and whilst the company remains the biggest shoe producer in the world, they are mich more than that. The company was originally founded in 1964 by the now billionaire Phil Knight, it apparently takes its name from the Greek Goddess of Victory, Nike. Nike is the basic marketing guru’s example of how important branding can be in an incredibly competitive market. Today, the company has expanded substantially from its beginnings, with brands and athletes spanning almost every global sport from Golf to Basketball and Ice Hockey. Nike owns the timeless Jordan Brand and is well known for being the winner of the Jordan Sweepstakes before he embarked on the greatest career in the history of professional basketball. But enough history, we need to consider the financials.
Nike recently reported their second quarter’s results, managing to buck the trend of slowing growth in what is apparently a mature industry. The company saw revenue growth of 10% on the previous quarter to $10.3bn, driven by growth across all geographies. Nike managed to improve their gross margin in the quarter, bucking the trend of their competitors, and was able to leverage 10% revenue growth into 35% earnings per share growth. The company highlighted their investments into constant product innovation and the digital transformation of their production, marketing and distribution. Looking more closely, the core Nike Brand continues to represent the majority of revenue, $9.8bn, up to 12% in constant currency terms, whilst Converse grew 15% to $480m with the momentum coming from its expansion into Asia and growth in Europe.
Nike is increasingly focusing on its global branding, having identified the opportunities in the Asian Middle Class Thematic, which is core to Wattle Partners approach. Their financials indicated that China was one of the fastest growing regions, with total sales improving 20% on quarter, and profit up 24%.