Morningstar | Nike Continues to Capitalize on Digital Sales, Supply Chain Improvements; Long-Term Thesis Intact
After Nike's third-quarter results, we do not plan to change our $80 fair value estimate, with year-to-date results tracking our full-year targets. Nike continues to capitalize on margin-accretive digital sales (up 36% in the quarter) while driving supply chain innovation. Nike’s digital efforts were highlighted with the Nike App (whose consumers averaged 40% higher sales than other customers), which we contend could lead to a steady new full-priced channel as more users install the app, improving the premium brand pricing underpinning our brand intangible asset and wide moat rating. Nike also fully digitized its palette of footwear materials, allowing design teams to react nimbly to demand shifts while limiting costs in production. Additionally, Nike began staging raw materials at its factories, allowing them to be quickly deployed in product creation, cutting lead times for jerseys in half. We view these efforts positively as they cut product lead times and allow Nike to adjust to consumer tastes quickly in a category with difficult-to-forecast fashion trends. As a result, we remain confident in our long-term forecast for sales growing high single digits, gross margin expanding to 46.8% (from 43.8% in 2018), and operating margin of 16% (from 12.2%) on average over the next 10 years.Year to date, Nike posted 9% (11% currency-neutral) sales growth with 44.4% gross and 12.3% operating margins, with sales in line with our full-year 10.1% growth and 44.5% gross margin forecasts but lagging our 13.6% operating margin. Management also provided initial fiscal 2020 guidance for high-single-digit revenue growth and gross margin and profitability expansion in line with its long-term financial goals offered in 2017 (50 basis points of gross margin improvement and midteens earnings per share growth per year), in line with our forecast for 7% sales growth and 50 basis points of gross margin improvement (over our estimated 44.5% margin for 2019).
NIKE is engaged in the design, development and marketing and selling of athletic footwear, apparel, equipment, accessories and services. The company focuses its NIKE Brand product offerings in Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Training and Sportswear categories. The company markets products designed for kids, as well as for other athletic and recreational uses such as American football, baseball, cricket, golf, lacrosse, tennis, walking, and other outdoor activities. The company has license agreements that permit unaffiliated parties to manufacture and sell, using the company-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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