Nike Inc (NYSE:NKE) provided an overview of its progress on key strategic initiatives to achieve sustainable, profitable long-term growth. During an investor meeting at its world headquarters near Beaverton, Ore., the Company announced a revenue target of $50 billion by the end of fiscal year 2020. Additionally the Company shared its long-term financial model of high single-digit to low double-digit revenue growth, mid-teens earnings per share growth and expanding returns on invested capital.
“NIKE is built for growth,” said Mark Parker, President and CEO of NIKE, Inc. “We see tremendous growth potential in our key categories and geographies, as we connect with athletes through personal service, inspirational experiences and innovative product. When we look across our entire business, there has never been more opportunity.”
The Company updated its projected long-term growth plans in the NIKE Brand geographies through fiscal 2020. For its more developed geographies (North America, Western Europe andJapan), NIKE now expects to generate average annual growth at a high single-digit rate over the next five years. The Company expects North America to reach $20 billion in revenue by the end of fiscal year 2020.
For its developing geographies (Emerging Markets, Greater China, and Central & Eastern Europe), the Company stated it expects to grow at a low double-digit average annual growth rate for the next five years. The Company expects its Emerging Markets geography to grow at a low double-digit average annual growth rate and for Greater China to grow at a mid-teens growth rate over the next five years, reaching $6.5 billion in revenue by the end of fiscal year 2020.
The Company provided an overview of its plans to drive growth in its NIKE Brand Direct to Consumer (DTC) operations. Driven by its digital business as well as inline and factory stores, the Company now anticipates achieving $16 billion in revenue by the end of fiscal year 2020. Over the next five years incremental growth in DTC revenues is expected to be driven by e-commerce sales, which are projected to grow to $7 billion. The Company also expects to drive wholesale growth in the mid-to-high single-digit range over the next 5 years.
Businesses and Categories
The Company expects its Women’s business to reach $11 billion in revenue by the end of fiscal year 2020**. It expects the Running category to grow to $7.5 billion by the end of fiscal year 2020**. The Jordan Brand, which will be reported separately from the NIKE Basketball category going forward, is expected to nearly double in size, to $4.5 billion, by the end of fiscal year 2020**.
Long-term Financial Objectives
Reviewing performance against the Company’s long-term financial model, Andy Campion, Executive Vice President and Chief Financial Officer, highlighted the Company’s strong returns to shareholders: “Our strong and consistent financial performance over the past 10 years has fueled Total Shareholder Returns in the high-teens on average, significantly outperforming the broader market and placing us in the top quartile of the S&P 500.”
The Company stated its primary financial objectives through the end of fiscal 2020:
- Revenue growth: average annual growth in the high-single to low-double digit range
- Gross Margin: expansion of 30 to 50 basis points per year, on average
- SG&A: Slight leverage, on average
- Earnings Per Share growth: average annual growth in the mid-teens range
- Return on Invested Capital: in the high-twenties to low-thirties percentage rate
- Free Cash Flow: growing faster than Net Income
- Capital expenditures: approximately 4% of revenues
- Dividend payout ratio: 25-35% over the next five years
- Total Returns to Shareholders: in the top quartile of the S&P 500 (Original Source)
Shares of Nike closed today at $125.83, up $0.02 or 0.02%. NKE has a 1-year high of $127.10 and a 1-year low of $83.85. The stock’s 50-day moving average is $116.45 and its 200-day moving average is $108.53.
On the ratings front, Nike has been the subject of a number of recent research reports. In a report issued on October 12, Deutsche Bank analyst Dave Weiner maintained a Buy rating on NKE, with a price target of $140, which implies an upside of 11.3% from current levels. Separately, on October 8, D.A. Davidson’s Andrew Burns upgraded the stock to Buy and has a price target of $140.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Dave Weiner and Andrew Burns have a total average return of 9.2% and 4.1% respectively. Weiner has a success rate of 59.4% and is ranked #548 out of 3773 analysts, while Burns has a success rate of 53.8% and is ranked #1108.
Overall, one research analyst has assigned a Hold rating and 18 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $137.64 which is 9.4% above where the stock opened today.
Nike Inc designs, develops and markets footwear, apparel, equipment, and accessory products. It is a seller of athletic footwear and athletic apparel. It sells its products through NIKE-owned in-line and factory retail stores and internet websites.