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NIKE US Macro Fundamentals And North American Revenue Drivers

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Analyzing NIKE’s revenues

NIKE (NKE) reported $7.4 billion in 2Q15 revenues, a 14.8% year-over-year increase. Markets had expected revenues of $7.2 billion. More importantly, gains were broad based, with revenues rising for all product categories and geographies, excluding Golf.

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North America

Performance in North America, NIKE’s largest market, was especially robust. Revenues grew 15.7% year-over-year to $3.2 billion, slightly outpacing overall revenue growth. The $440 million increase was also the highest among all geographies.

NIKE plans to replicate the success of its strategies in North America in other parts of the world. That’s why analyzing the segment’s drivers is vital. Here are the key growth drivers in North America:

  • Higher consumer demand
  • A tilt in the sales mix toward higher-priced products
  • Increased market share in key product categories
  • Higher direct-to-consumer, or DTC sales
  • Improved and differentiated retail experience for consumers

We’ll analyze these factors in greater detail further on in this series.

GDP and consumer demand

The company cited increased consumer demand for its products as one of the major reasons for strong performance. The US is NIKE’s home market, and sales here make up 46% of NIKE’s total worldwide revenues.[1. Fiscal year ending May 31, 2014]

Consumption in the United States roared back in 3Q 2014. Third-quarter real GDP (gross domestic product) rose 5.0% quarter-over-quarter, its strongest showing since 2003. Gains in consumption, which accounts for over two-thirds of US GPD, led the increase. Consumption increased by 3.2% in 3Q 2014, spurred on by increases in healthcare and recreational spending.

Personal consumption up

Personal consumption expenditures were strong in October and November, rising 0.3% and 0.6% month-over-month, respectively. An improving labor market, along with lower gasoline prices, is causing a surge in consumer spending.

The unemployment rate fell to 5.8% in October, a six-year low. Gasoline prices are also at their lowest levels in over five years. These factors are boosting consumer discretionary spending and are likely to benefit companies such as NIKE (NKE) and its competitors, Deckers Outdoor Corp. (DECK), VF Corp. (VFC), Lululemon Athletica (LULU), and Columbia Sportswear (COLM).

Retail sales growth in October and November was also above expectations, expanding by 0.5% and 0.7%, month-over-month, in October and November, respectively.

The next article discusses key NIKE products and the company’s market share gains in the last quarter.

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