Nike’s first quarter shines as direct-to-consumer push gains momentum

(Reuters) – Nike Inc’s (NKE.N) quarterly revenue and profit beat market expectations on Tuesday as a push to sell sneakers and apparels to consumers through its own stores and online retailers gained pace, boosting margins and sending its shares up 5%.

Wall Street has been bullish about Nike ever since the world’s largest footwear maker unveiled “Nike Direct,” a strategy to focus on online sales, product launches and supply chain improvements to bring new products to shelves faster.

Nike has also launched pop-up stores that cater to “sneakerheads” or loyal fans of the brand in several big U.S. cities and opened flagships in New York and Beijing to build a strong relationship with its customers.

These efforts helped the company sell more products at full price, driving a 150 basis points expansion in gross margins in the first quarter to 45.7%, well above analysts’ expectations.

“When they sell through their own website, that’s a very strong margin and that’s growing very rapidly, becoming a bigger and bigger part of the business,” Edward Jones analyst Brian Yarbrough said.

Nike said it expects gross margin to increase by roughly 25 basis points in the second quarter, when the impact of tariffs on Chinese imports are likely to be more pronounced.

“We nonetheless expand gross margin over the balance of the fiscal year, though of course not to the same level as we saw in Q1,” Chief Financial Officer Andy Campion told analysts.

Shares of the Oregon-based company were up at $91.80 in extended trading, putting them on course for a record open on Wednesday.

(Graphic: here)

CHINA DELIVERS

Nike’s popularity in China continued to power its revenue growth, especially at a time when rivals Adidas (ADSGn.DE) and Under Armour (UAA.N) ramps up in the United States, its biggest market.

Chief Executive Officer Mark Parker said the company has seen double-digit growth in Greater China every quarter for more than five years, in part helped by its digital initiatives.

Revenue from China rose 22% to $1.68 billion, but in North America it rose by a slower-than-expected 3.6%.

The results “exemplify Nike’s persistent defiance of retail gravity, led by China”, CFRA analyst Camilla Yanushevsky said.

Sales from its digital platform, which includes apps and websites, grew 42%.

Overall revenue rose 7.2% to $10.66 billion and it earned 86 cents per share. Analysts were expecting revenue of $10.44 billion and profit of 70 cents, according to IBES data from Refinitiv.