NIKE has provided an overview of its progress on key strategic initiatives to achieve sustainable, profitable long-term growth. During an investor meeting on 14 October at its world headquarters near Beaverton, Oregon, the company announced a revenue target of US$50 billion by the end of fiscal year 2020. This is up significantly on a previously targeted US$36 billion in fiscal year 2017.
Additionally, NIKE 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. “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 and Japan), 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 US$20 billion in revenue by the end of fiscal year 2020.
For its developing geographies (Emerging Markets, Greater China and Central & Eastern Europe), the NIKE 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 US$6.5 billion in revenue by the end of fiscal year 2020.
NIKE also 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 US$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 US$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 US$11 billion in revenue by the end of fiscal year 2020. It expects the Running category to grow to US$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 US$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 NIKE’s strong returns to shareholders, “Our strong and consistent financial performance over the past 10 years has fuelled 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,” he said.
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 pay-out ratio: 25-35% over the next five years
- Total returns to shareholders: in the top quartile of the S&P 500