Nike Says Its Newfound Momentum Is Just the Start

It took a while, but Nike (NYSE: NKE) is finally getting its groove back. In its recent earnings report, the sports apparel titan announced accelerating sales growth in the core U.S. market while a flood of innovative product releases also lifted profitability. Executives announced that both the top- and bottom-line results edged past their expectations.

CEO Mark Parker and his team went into far more detail about the latest operating trends when they held a conference call with Wall Street analysts. Below are a few key takeaways for investors from that presentation.

Continue Reading Below

Keeping promises

No one can predict the future, and Wall Street pros (sometimes) understand that fact. However, investors still tend to reward companies that issue aggressive business outlooks -- and then manage to beat those optimistic targets.

That's what happened here. Nike said back in June that demand trends implied accelerating growth in the U.S. market, and those gains materialized as sales sped up to a 6% rate from 3%. Profitability rose a bit faster than expected, too, thanks mainly to an influx of innovative product releases across its footwear and apparel portfolio.

Adapting to changing tastes

Nike's direct digital sales channel was its fastest-growing segment in each of its geographies, rising 36% overall during the quarter. Management has long-term plans to continue supporting this division, including through costly enhancements to the supply chain, digital marketing, and the mobile app.

Executives believe there's a bright future ahead for the physical shopping environment, too, but Nike's focus will be on delivering unique customer experiences either through its own stores, or through partnerships like its Foot Locker relationship.

It's good to be the king

One of the biggest advantages Nike has over rivals is the massive pool of resources it can direct toward advertising and marketing. The company spent $3.6 billion on these categories last year, which is comparable to Under Armour's entire sales result in the core U.S. market. It shelled out almost $1 billion last quarter alone, mainly on the World Cup event.

Nike is aiming to extend that spending advantage to the digital sales channel over the next few years, and some of the expensive projects it's working on include digital demand sensing, data analytics, digital product design and production, and a new resource planning backbone that should help it quickly create, market, and deliver its footwear and apparel products.

Executives believe they can pour cash into these initiatives while still meeting their broader financial goals of boosting profitability and improving return on invested capital through 2022. In the meantime, Nike appears primed to achieve the first part of that long-term plan, with sales speeding up in fiscal 2019 and gross margin on track for its first increase in three years.

10 stocks we like better than NikeWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Nike wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Demitrios Kalogeropoulos owns shares of Nike and Under Armour (C shares). The Motley Fool owns shares of and recommends Under Armour (C shares). The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.