Businesses had to engage in some deft footwork last year to retool their operations amid the disruptions of coronavirus. One firm taking the right steps seems to be Nike ($NIKE).
The sneaker giant filed its most recent quarterly report on Jan. 5, and all the important numbers on the income statement looked good. Revenue up 8.8 percent from the year-ago period to $11.24 billion; pre-tax income up 16.5 percent to $1.45 billion. Even total overhead and sales expenses declined by 1.7 percent — an impressive feat of cost management, considering all the new expenses firms have had to pay as part of operating during a pandemic.
OK, but exactly what is Nike doing to get these numbers? We’d written before about retailers making a pivot into e-commerce sales since physical stores are no longer reliable sales channels. Was that part of Nike’s strategy?
First we looked at Nike’s segment disclosures. Figure 1, below, shows lots of geographic segments.
That’s informative unto itself—revenue up in all four regions—but it doesn’t tell us anything about e-commerce versus other sales channels. We did, however, notice this item in the narrative discussion that preceded the table disclosures: “The Company's NIKE Direct operations are managed within each NIKE Brand geographic operating segment.”
That bit about NIKE Direct sounded like a clue to us. So we hopped over to the Management Discussion & Analysis section, and found considerably more detail about that part of the business.
As one might guess from the name, NIKE Direct is the firm’s business that sells directly to consumers, both through e-commerce sales and company-owned stores. (Nike also has a wholesale operation where it sells its gear to other retailers like Footlocker ($FL), for example.)
Nike does disclose revenue from NIKE Direct in the MD&A, and that line of business was up in the last quarter, too. See Figure 2, below.
Except, the $4.31 billion in that line item still combines both e-commerce and company-owned stores. So we kept reading, and finally found this paragraph tucked away on Page 28:
On a reported basis, NIKE Direct revenues represented approximately 40 percent of our total NIKE Brand revenues for the second quarter of fiscal 2021 compared to 33 percent for the second quarter of fiscal 2020. Digital sales were $2.4 billion for the second quarter of fiscal 2021 compared to $1.3 billion for the second quarter of fiscal 2020. On a currency-neutral basis, NIKE Direct revenues increased 30 percent, driven by digital sales growth of 80 percent, which more than offset comparable store sales declines of 4 percent primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
There you have it. Digital sales grew by $1.1 billion in the most recent quarter (from $1.3 billion one year ago to $2.4 billion today), and if it weren’t for that e-commerce growth, total revenue for Nike would have declined from the year-ago period. As management itself says, digital sales growth more than offset any physical store sales declines.
So that’s another retailer making the pivot to e-commerce. Deft footwork, indeed.
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