How Nike Made a Strong Recovery in China


Nov. 20 2020, Updated 3:06 p.m. ET

Higher US dollar affects Nike’s results

Nike’s (NKE) top line grew by 10.1% to $30.6 billion in fiscal 2015. Reported sales growth, however, was affected due to the stronger US dollar. Constant currency sales growth came in at 14% in fiscal 2015 and 13% in 4Q15. ~55% of Nike’s sales stem from outside North America[1. US and Canada]. The significantly higher dollar versus most major currencies has affected performance for all US multinationals, including Nike.

However, despite revenue headwinds, reported sales grew in all geographies, excluding emerging markets and Japan. Footwear sales were especially strong, with basketball, women’s training, and sportswear the most prolific categories.

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Western Europe thrives

Despite the higher dollar versus the euro, Western Europe (VGK) revenue grew 14.7% to $5.7 billion in fiscal 2015. Constant currency sales growth was even higher at 21%. This is Nike’s second largest market, accounting for 18.7% of sales. Traction was seen in most sporting categories. All categories, excluding soccer and golf, posted double-digit growth, according to Don Blair, Nike’s CFO.

Headwinds from a higher US dollar are expected to continue this year, which will affect sales. Futures orders for Western Europe are up 14% on a constant currency basis, but down 11% on a reported basis.

This will affect results for Nike’s peer VF Corporation (VFC) as well, which derived ~37.8% of its revenue from abroad, mostly from Western Europe last year. But the higher dollar may benefit Adidas’s (ADDYY) results, as it reports in euros.

Greater China

Reported sales grew by 17.9% to $2.6 billion in Greater China. Running, basketball, and sportswear sales saw traction. Nike’s performance in China benefited from its efforts to clear up older inventory, a more China-focused product assortment, new retail formats, and refurbishment of older wholesale stores, according to Don Blair. The company also reported growth of 52% in its DTC channel in 4Q15, above the company average of 39%.

Greater China (FXI) is the third-largest segment for Nike, accounting for 10% of sales. The segment is also the company’s most profitable, with a EBIT[1. Earnings before interest and taxes] margin of 32.4%, compared to 13.8% for the company overall.

However, profitability had dipped between fiscal years 2012 and 2014. In fiscal 2015, EBIT margin expanded by 1% to 32.4%, driven by higher demand and higher DTC sales, which rose 52% year-over-year in 4Q15.

Nike is bullish on prospects in China, backed by a 20% growth in futures orders, the highest among all its geographies.


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