Sneaker Demand Fuels Nike Earnings

Nike saw significant growth in the second quarter of its fiscal 2020 year, as sales grew by double-digits in each of its core markets. 

Demand for limited-edition Jordan sneakers propelled the popular shoe line to its first billion-dollar quarter, according to the company. In recent months, Nike has steadily rolled out multiple variations of the original Air Jordan 1 in different colors which fans have gravitated to, it said.

“Our deliberate strategy is to add new styles and colors to the Air Jordan 1, which allows us to bring one of the world’s most popular sneakers to more people while offering consumers more choice,” said Nike CEO Matt Parker, on an earnings call with analysts.

Other shoes flying off the shelves at Nike include new versions of its Air Max line – the Air Max 270, 720, and the 200 – which all debuted in the last year. New basketball shoes for Nike athletes Kyrie Irving and LeBron James, featuring a new cushioning system, also sold well on Nike’s digital channels and in China, Parker added.

The NBA faced severe backlash from China earlier this year following comments made by Houston Rockets General Manager Daryl Morey on social media in October about political unrest in Hong Kong. Chinese broadcast companies reacted by refusing to air NBA games, hurting the league’s reputation.

Nike did not comment specifically on NBA merchandise. But the company did say it is proactively managing inventory in Hong Kong-based stores after recent declines in retail traffic. However, sales in China grew 23% in the period ending November 30, including 44% specifically on Nike’s digital marketplaces. 

“While we are, of course, very mindful of the geopolitical dynamics in Greater China, the Nike brand continues to deeply resonate with consumers, and our growth continues to be strong and sustainable,” said Andy Campion, Nike’s chief financial officer. 

READ MORE: China Fallout? Injuries? What’s Behind NBA’s ‘Shocking’ Drop in TV Numbers?

Arguably the most significant catalyst for Nike’s recent success is its digital direct-to-consumer business, which incoming CEO John Donahoe will look to take to the next level next year. Donahoe was formerly the CEO of Ebay, and currently sits on Nike’s board. He will officially take over day-to-day operations at Nike on January 13. 

Both the Nike and SNKRS apps drove digital sales at the Oregon-based company, which grew 38% in the second quarter. On Black Friday alone, digital sales grew 70% year-over-year in North America and as much as 50% in European markets. 

“Nike’s not only deeply committed to using our digital advantage to make the consumer experience better, we’re also using data science to inform how much product we supply and where,” Parker told analysts, acknowledging Nike’s acquisition of predictive analytics company Celect in August.

“We’re leveraging data that includes past and present consumer interest in products and purchasing signals to better predict demand,” he added.

Internationally, Nike disclosed a 10% growth in revenue in its Europe, Middle East, and Africa segment, growing to $2.5 billion across those regions combined – as it continues to penetrate Adidas’ home turf. The German company reported a combined $1.7 billion in sales for its European business when it last reported earnings in November. Adidas does not publicly disclose sales in the Middle East and Africa on its financial statements.

READ MORE: Adidas European Sales To Be Supercharged by UEFA Euro 2020

Next year also provides a critical opportunity for Nike to grow abroad with major sporting tentpole events like the UEFA European Championships and the Olympics in Tokyo just months away. The company said it would release new products dedicated to maximizing revenue in the latter half of 2020 over the next quarter. 

Nike reported a 13% growth in total revenue to $10.3 billion on a currency-neutral basis in its fiscal second quarter. Net Income also increased by 32% to $1.1 billion.