Sporting goods giant Nike has joined the chorus of retailers and brands warning of rising input costs in the supply chain, even though its stable of portfolio brands has returned strong revenue growth during the first quarter of its current financial year.
Nike posted an 8% rise in total Q1 revenues yesterday (23 September), sending net income up by 9% to $559m during the period on the back of “surprisingly strong” gross margins.
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The firm’s portfolio of brands, including Converse, Hurley, Cole Haan, Nike Golf, and Umbro, actually outstripped the namesake Nike line during the quarter. They grew by 16% – double to 8% increase for flagship products.
Nike CEO Mark Parker told investors during a conference call that “flexibility” between brands has enabled the company to offset under-performing units. He said: “In an environment where certain categories or geographies might be slower to recover, our diverse global portfolio allows us to create new growth in other key markets.”
That is not to say Parker is any less “obsessed” – the term he uses to describe Nike’s strategy – with developing the Nike brand itself.
With a reported revenue of $4.5bn, compared to overall group revenues of $5.2bn, the Nike ‘tick’ still represents an overwhelming chunk of business.
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By GlobalDataCharlie Denson, president of the Nike brand, told investors that Nike had its best FIFA World Cup ever in South Africa this summer. But while he is correct in saying that Andrés Iniesta kicked the winning goal for Spain wearing a pair of Nike boots, it is worth noting that the victors were wearing the three stripes of Adidas.
Football aside, Nike has also boosted its presence in surfing, basketball and running through recent top-level endorsement deals.
As a result, demand for Nike products is peaking, especially in China and the US, with future orders from now until January 2011 10% higher than the same period last year.
Denson said: “With one look at our futures, you can see the demand is high. It’s a great position to be in. But it does come with some challenges, specifically with select technical footwear and performance apparel products.
“We are working closely with all our manufacturing partners to accelerate production and meet demand on these highly sought after products.”
Nike CFO Don Blair added he has encountered higher sourcing and airfreight costs along the way, together with more expensive labour, oil and cotton. But he pointed out that cotton is a smaller factor in input costs than labour or freight.
Therefore, despite soaring profits, Nike’s supply chain is not immune to the sourcing challenges facing other retailers. Indeed, due to the rising costs Nike now expects full year gross margins about 50 basis points below those booked the year before.
However, the top line sales growth of Nike’s branded portfolio should tick more than enough boxes to suffice.
Click here to read more on Nike’s Q1 results.
