By guest author Justin Lahart from Wall Street Journal
For a sneaker company, shares of Nike NKElook awfully expensive. But Nike has turned itself into something more than a sneaker company.
The company on Tuesday, September 25, 2019, reported that it earned 86 US cents a share on sales of USD 10.7 billion in its fiscal first quarter ended last month, easily topping analysts’ estimates on both counts. Sales were up 7 % from a year earlier, and climbed 10 % after adjusting for currency swings. Business was strong pretty much everywhere, but especially in China, where Nike’s sales grew by 27 % excluding currency effects.
Indeed, there can be little criticism of how Nike performed in its first quarter. It is Nike’s stock price where doubt creeps in: Its shares traded at about 29 times expected earnings as of Tuesday’s (September 25, 2019) close, which compares with about 17 for the broader S&P 500.
To justify that valuation, Nike will have to keep growing rapidly in the years to come. And for an already ubiquitous company that is in the business of selling shoes and apparel, growing quickly over the long haul seems like a hard thing to pull off. But Nike has a number of things going for it.
For starters, the company is at the forefront of a cultural shift toward athleisure and street fashion. Wearing a pair of Nike sneakers or a Nike shirt to the office or for a night out has become accepted behavior in many settings. More and more people view sneakers as a fashion accessory, and owning multiple pairs of Nikes is becoming normalized. Witness the massive collections of sneakerheads with big social-media followings—some of whom are Nike-sponsored athletes.
The company has invested heavily in apps and other online selling platforms, and as a result is moving away from selling products through retailers such as Foot Locker , and toward becoming a retailer in its own right. Nike’s digital sales were up 42 % from a year earlier in its first quarter, which comes on top of 35 % growth in its latest fiscal year. In addition to driving sales, its digital investments and initiatives such as its move to start adding RFID tags to all its products may only make it nimbler when it comes to marketing and merchandising.
One of Nike’s old slogans was, “There is no finish line.” For its growth story, that ultimately may not be true, but the finish line isn’t in sight just yet.