The ‘Just Do It’ brand–NIKE, Inc. NKE seems to be living up to its tagline, as evident from the company’s aggressive long-term targets provided at its investor meet, held at its global headquarters yesterday.
Targets for 2020
Progressing well with its strategic initiatives, NIKE foresees significant growth prospects in its core categories and across geographies. Taking cue from this optimistic outlook, the company, which delivered 10% top-line growth in fiscal 2014 and fiscal 2015, expects its revenues to reach a $50 billion mark by the end of fiscal 2020. NIKE ended fiscal 2015 with revenues of $30.6 billion.
Sources revealed that the company witnessed an impressive increase in Chinese sales over the three months ended Aug 2015, a period when most retailers were pressurized owing to the slowdown in China’s economy. Looking ahead too, sales in China are expected to continue to grow at a decent pace, backed by strong demand for sports.
Moving back to NIKE’s target for the next five years, the company envisions the developed markets of Western Europe, North America and Japan to witness average annual growth at a high single-digit rate, with North American sales reaching a $20 billion mark by fiscal 2020 end. Further, the developing regions, including Greater China, the Emerging Markets and Central & Eastern Europe are anticipated to grow at a low double-digit average annual growth rate.
Additionally, this Zacks Rank #2 (Buy) company has been receiving tremendous support from its eCommerce operations and women’s category.
NIKE has been witnessing solid digital trends, which encouraged management to project eCommerce sales to increase to $7 billion over the next five years. This, together with solid inline and factory store performance, will ultimately boost the company’s direct-to-consumer revenues which are estimated to be $16 billion. Moreover, NIKE anticipates wholesale sales to rise in a mid-to-high single-digit range through fiscal 2020.
Moving to the women’s category, NIKE’s Women’s business is expected to touch the $11 billion revenue mark by fiscal 2020. We note that this category has been significantly improving over the years, with the modern women being fitness savvy, which in turn, has augmented growth for these sporting retailers.
In this respect, NIKE faces stiff competition from retailers like Lululemon Athletica Inc. LULU, given the popularity of the athleisure line of business.
Delving deeper, NIKE’s Running category is anticipated to reach $7.5 billion, while its Jordan Brand’s size is expected to almost double to $4.5 billion over the next five years.
Backed by its solid trends, the company has been generating significant value for shareholders over the last 10 years. Looking ahead, NIKE expects to keep this trend alive and consequently, management highlighted its other long-term goals.
By the end of fiscal 2020, the company envisions gross margin to expand in a range of roughly 30–50 basis points annually, and SG&A to leverage. Free cash flow is expected to grow faster than net income, while capital expenditures are anticipated to be nearly 4% of revenues.
Also, continuing with its practice of returning excess cash to shareholders, NIKE projects dividend payout ratio to be 25-35% over the next five years. Further, the company provided an insight into Return on Invested Capital, which it expects in the high-twenties to low-thirties percentage rate.
Finally, the company expects earnings per share to grow in a mid-teens range.
Other Stocks to Consider
Other well-ranked stocks worth considering in the same industry include Skechers U.S.A., Inc. SKX and Carter's, Inc. CRI, with a Zacks Rank #1 (Strong Buy) each.
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