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How Do Nike’s North American Prospects Look in 3Q16?

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North America

North America is Nike’s (NKE) largest segment in terms of both revenue and operating profit. The world’s largest athletic goods company derived almost 45% of its revenue from North America in fiscal 2015. In the first six months of the current fiscal year, segment sales and pre-tax income rose by ~9% and ~10%, respectively. Footwear and apparel sales both grew by ~10%, due to both higher volume and higher selling prices. Among all segments, North America was the highest growth contributor to Nike’s revenue .

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Market dominance

Nike is the market leader in the United States in the athletic footwear and apparel categories.[1. Source: The NPD Group] Nike’s footwear sales grew by 13% to $18.3 billion in fiscal 2015.[2. Nike brand revenue on a wholesale equivalent basis] In contrast, smaller footwear rival Skechers’s (SKX) sales grew 32.4% in 2015 to $3.4 billion.

Nike has consistently provided customers with a steady stream of innovative premium products from its pipeline. A large part of its success in North America can be attributed to its basketball and running footwear launches. Fiscal 3Q16 has been no exception.

Nike launched a number of signature shoes in the quarter, including the Kyrie 2, which retails for $185 and is named after basketball star Kyrie Irving, and the Kobe Mentality 2, which retails for $100 and is named after Kobe Bryant. The company is also planning to report sales under its Jordan brand as a separate category and double the brand’s sales to $4.5 billion by fiscal 2020. Strong sales under its Nike and Jordan brands have made the company the market leader in basketball footwear, with an estimated market share of over 90% in the United States.[2. Source: The NPD Group]

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Last October, Nike’s competitor Under Armour (UA) launched the Curry Two signature line of footwear, named after 2014–15 NBA (National Basketball Association) season MVP (Most Valuable Player) Stephen Curry. Helped by the launch, the company’s footwear revenue nearly doubled in 4Q15, rising 94.5% year-over-year to ~$167 million. The shoe retails for $130.

Outlook

Nike is bullish on its prospects in North America. The company is projecting segment sales growth at a high-single-digit CAGR (compound annual growth rate) through fiscal 2020. In fiscal 2Q16, Nike reported future orders growth of 14% in North America, which should provide a sales (XLY) upside in the coming quarters. Nike makes up 2.4% of the portfolio holdings in the SPDR Dow Jones Industrial Average ETF (DIA).

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