Nike shares surge 12% to record high after sales top estimates and retailer sees 'return to growth' in US

Key Points
  • Nike is trying to accelerate its U.S. business, where sales have stagnated of late.
  • A handful of new product launches and selling more directly to consumers has helped drive purchases.
  • The company, meanwhile, has been embroiled in a #MeToo moment, with several senior male employees leaving abruptly.
People walk past a Nike store in New York City.
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Nike on Thursday reported earnings and sales that topped analysts' expectations for the fiscal fourth quarter and announced a new, four-year $15 billion share repurchase program.

The company said it saw a "return to growth in North America," which has lately been a sluggish spot for sales following a handful of retail bankruptcies. Revenues, meanwhile, were up double digits in international markets during the latest period, as Nike reaped the benefits of a handful of new product launches.

Nike shares jumped nearly 12 percent to an all-time high on Friday following the news.

The Oregon-based retailer reported net income of $1.1 billion, or 69 cents per share, for the quarter ended May 31, compared with $1 billion, or 60 cents a share, a year ago. Excluding one-time items, Nike earned 69 cents a share, 5 cents ahead of analysts' expectations, based on a Thomson Reuters survey.

Total sales climbed 13 percent to $9.8 billion, again ahead of a forecast by the Street for $9.4 billion. Nike said its digital business alone was up 41 percent during the quarter.

"Fueled by a complete digital transformation of our company end-to-end, this year set the foundation for NIKE's next wave of long-term, sustainable growth and profitability," CEO Mark Parker said in a statement.

Part of Nike's latest strategy to win back sales in the U.S. includes selling more directly to consumers (thereby improving gross margins), making bigger investments in women's footwear and apparel, piloting a test with to rid the marketplace of counterfeit goods, and partnering with styling service .

Nike has also been focused on adding experiences to stores and scaling new merchandise. A new React cushioning technology in its sneakers has been one big hit, for example.

Nike's business — much like that of its peers in the athletic footwear and apparel industry — has been particularly stronger outside of North America of late. In areas such as Greater China, for example, there's still more room to grow. Retail bankruptcies in the U.S. (i.e., Sports Authority and Golfsmith) have been disruptive for companies such as Nike, Under Armour and Adidas.

During the latest quarter, Nike said sales excluding currency changes climbed 3 percent in North America, 10 percent in Europe, the Middle East and Africa, 25 percent in Greater China, and 13 percent in Asia Pacific and Latin America. Footwear sales were up 8 percent overall, apparel sales climbed 15 percent, while equipment sales dipped 3 percent.

"Our new innovation is winning with consumers, driving significant momentum in our international geographies," Parker said.

Nike has been embroiled in a #MeToo moment, with several senior male employees leaving abruptly or set to leave Nike later this year, including brand President Trevor Edwards. Edwards was expected to be the next CEO in line after Parker finished his term, but he will now retire officially in August amid complaints about his poor workplace conduct.

Parker has since apologized to Nike employees in an internal memo for allowing a corporate culture at Nike that excluded some workers and for failing to take complaints about workplace issues more seriously, sources familiar told The Wall Street Journal in May.

Nike's chief of human resources, Monique Matheson, has also since said that Nike will make changes to ensure women and minorities are better represented in top jobs at the company.

Wall Street hasn't been as rattled by the #MeToo developments at Nike. Some industry analysts have applauded Nike's efforts to conduct a sweeping internal review of personnel before the situation worsened.

"We are encouraged that the Company is embracing change; both culturally and with progressive go to market strategies," Stifel analyst Jim Duffy said. "Against this backdrop, we expect the Company shows strong evidence of firming fundamentals that make more tangible capacity for the long-term objective high-single digit revenue growth and mid-teens EPS growth."

Looking to the future, Nike is more upbeat about fiscal 2019, building on the latest momentum within the U.S. It hiked its sales outlook Thursday and now expects revenues to increase a high-single-digit percentage rate, up from a mid-to-high range.

As of Thursday's market close, shares of Nike are up more than 34 percent so far this year, trading around $72 apiece. The company has a market capitalization of roughly $115.6 billion.

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