"Nikes ambitious digital transformation is driving strong results"

"Nike's ambitious digital transformation is driving strong results"

Efforts to drive speed and efficiency throughout its supply chain and connect directly with consumers have helped sporting goods giant Nike Inc to double-digit revenue and profit growth in the second quarter.

The company said its Express Lane business grew by double digits in the three-month period – and it is planning to ramp up its use of radio frequency identification (RFID) technology in 2019.

Total revenue in the quarter to 30 November jumped 10% to $9.4bn, and was up 14% on a currency-neutral basis. Nike brand revenue reached $8.9bn, up 14% on a currency-neutral basis, driven by growth across all geographies and in Nike Direct, led by digital.

Revenue was up in nearly every key category, led by sportswear and with double-digit growth across footwear and apparel globally. Highlights included an 8.5% rise in revenue in North America, its biggest market, and a jump of 26.4% in China.

Gross margin increased 80 basis points to 43.8% primarily driven by higher average selling prices and margin expansion in Nike Direct, partially offset by higher product costs. Higher revenues and gross margin helped lift net income by 10% to $847m.

"Nike's ambitious digital transformation is driving strong results and momentum in North America and in our international geographies," said Mark Parker, chairman, president and CEO.

"We're incredibly energised about 2019 – with a full innovation pipeline; the most personal, responsive retail experiences in the industry; and a supply chain that's delivering speed at scale."

Speed and agility

The gains are being accelerated by Nike's Consumer Direct Offense – which is in turn driven by its triple double strategy (2X Innovation, 2X Digital, 2X Speed).

In essence, this is helping Nike create "a local business, on a global scale" – in 12 key cities and 10 key countries around the world.

As well as a focus on more innovation and digital one-to-one engagement with consumers, a core component is more responsive product creation and manufacturing and delivery at speed.

"We know that to fully leverage or fully offer consumers what they want in the moment requires a high level of agility in our business. And through 2X Speed, we're elevating the industry, creating an end-to-end value chain that's centered on the consumer," Parker reiterated on a post-earnings call with analysts.

"In Q2, our Express Lane business grew double digits, supporting key cities with hyper-local product and faster fulfilment to drive higher full price sell-through."

CFO Andy Campion also noted that product updated and fulfilled through the Express Lane manufacturing initiative now represents a double-digit percentage of the company's total business. "This is significant as Express Lane product also largely sells through at full price, favourably impacting margins."

The company's responsive product creation and manufacturing has many components, including digital product creation for greater precision and creativity and design; planning and staging materials to reduce lead times; and automation to increase speed and quality in manufacturing.

These initiatives also reduce product cost and enhance inventory efficiency, the greater labour productivity and less waste.

"Today, more than half of our total footwear production has been modernised through initiatives started in the modernisation centres of our top six manufacturing partners and our Advanced Product Creation Center at our world headquarters," Parker explained.

To support its speed initiative, Nike is also planning to scale RFID into footwear and all "not licensed" apparel in 2019.

"This will lead to vastly improved product visibility and accuracy across the supply chain from product creation to point-of-sale...so that when consumers are looking for product, we're in a position to provide it if it's not in the store that they're looking for.

"And it further opens up the possibility to integrate more widely with our wholesale partners, contract factories and distribution centres."