CEO Mark Parker described the passing of the TPA as “an important step”

CEO Mark Parker described the passing of the TPA as “an important step”

Sporting giant Nike has reaffirmed its commitment to scaling up its advanced domestic manufacturing operations following the clearance of a number of key pieces of US trade legislation last week.

The Trade Promotion Authority (TPA), which enables President Obama to fast-track free trade agreements, is seen as key to finalising the Trans-Pacific Partnership (TPP). It was last week approved by Senate lawmakers in a 60-38 vote, and now goes to the White House to be signed into law.

Speaking of the news on the firm's earnings call, CEO Mark Parker described the passing of the TPA as "an important step" toward final approval of the Trans-Pacific Partnership (TPP), which he said will help Nike accelerate the work it is doing with advanced manufacturing.

He added: "It will help us expand our business overall, certainly give us an opportunity to build local manufacturing here in the United States, and can put us closer to market events, some of the innovation particularly in the area of customisation."

The TPP pact is expected to be finalised by early next year. If passed, it could eliminate duties on apparel and footwear imports from Vietnam and Malaysia to the US. Savings on such tariffs would, Nike has said, free up capital to invest in a new advanced manufacturing model and a domestic supply chain to support US based manufacturing.

US manufacturing would allow it to deliver product faster to market, create innovative performance footwear, provide customised solutions for consumers, and advance sustainability goals.

Parker pledged to expand its advanced manufacturing operations in the US when he met with Obama at Nike's world headquarters at Beaverton, Oregon, in May. The company has been working on this for around four years.

"The opportunity to translate some duty relief into investing in our advanced manufacturing supply chain efforts here in the United States is going to be significant, we hope. That’s our goal," Parker told analysts. "The idea is that we will accelerate and we will see some real benefits from that.

"You’re going to see the overall supply chain geographically shift a bit here and there with the advancements of new manufacturing innovation. That is a major priority for Nike. It will give us the flexibility to create more localised manufacturing over time, and that will put us closer to market and again allow us to advance products, particularly in the customisation area and to meet more local demand as well."

A year for innovation
Nike saw its share price climb late last week as it upped its full-year sales forecast, revealed fourth-quarter earnings that beat estimates, and noted an increase in growth of "futures orders".

Parker described 2015 as an "outstanding" year for Nike, adding that the company has managed to navigate a "volatile currency environment" and sharpen its focus in key markets.

"We will continue to drive that same level of discipline and focus as we look ahead to fiscal year 2016. You can expect us to leverage our portfolio to further unlock growth around the world to expand the market and to increase share."

And Parker says they will achieve this through innovation and accelerating new opportunities such as breakthrough technologies.

Nike will be building on an already healthy portfolio of innovation, including bringing its Flyknit options to NIKEiD, the group's online customisation tool, in the third quarter. It has also developed new materials such as Flyweave, aimed at "pushing the limits of lightweights with superior strength", which was introduced this year with the Jordan XX9 shoe. Parker said there will be more innovation using Flyweave to come.

Nike also developed its Dri-Fit technology, which helps draw sweat away from the body through the fabric. This year the innovation was used in its Pro Bra collection.

"At Nike we’re always moving forward. We’re relentless in our pursuit to get better and we see opportunities that no one else can," Parker told analysts. Fiscal 16 will be no different. We have great momentum and we will continue to drive it by growing our largest categories such as running, basketball, and football. This will be in geographies such as North America, Western Europe and China, and we will unlock the areas with the greatest potential for growth, such as women’s, young athletes and apparel by accelerating new opportunities such as breakthrough technologies and product in advanced manufacturing and digital.

"We have one of the strongest brands in the world with a world of opportunities still ahead. And that’s why fiscal 16 will be our best year yet."

Stellar performance
For the new fiscal year, Nike is projecting sales, excluding currency fluctuations, to grow in the low double-digit percentage range, from a previous forecast of slightly above high single digits.

This follows a year in which Nike revealed revenue growth of 10% to $30.6bn, and earnings growth of 22% to $3.3bn. Gross margin expanded 120 basis points to 46%.

In North America, sales were up 12% for the year to $13.74bn, despite the company working through inventory as a result of the West Coast port congestion. Despite this, CFO Don Blair is optimistic this won't have a material impact on the new fiscal.

"We feel very confident that we're going to be working through that inventory in a way that's brand accretive and is not going to be problematic from a profitability standpoint. Not trying to get to any specific prediction of a percentage on one of the geographies, North America has done a phenomenal job over the last years of building profitability. They have a very well-developed network of factory stores, they manage that marketplace very well. So, we are confident that we are going to work our way through that inventory in a constructive way."