After another robust quarter, the Nike group upgraded its five-year sales target, predicting that its turnover will reach between $28 billion and $30 billion for the fiscal year ending May 2015. Only last year, the company had targeted sales of $27 billion by the end of the five-year period.

Unveiled at an investor meeting earlier this week at Nike's head office in Beaverton, Oregon, the upgrade comes after the company embarked on another growth spurt in the last fiscal year and expanded ahead of the plans it outlined in May last year. While growth remains sluggish in Europe, Nike's strategy of focusing more sharply on each sports category has enabled it to achieve remarkable growth in North America, in spite of its already overwhelming market share in the region. Meanwhile, the group is aptly gaining ground in emerging markets.

The new targets include sales of $24-$25 billion for the Nike brand in the fiscal year ending in May 2015, up from a previous target of $23 billion. The category offense will remain at the heart of the brand's strategy for the coming years. Its impact was particularly impressive in the last fiscal year in the running category, where Nike achieved wholesale sales of $2.8 billion, up by 30 percent in constant currencies. The strategy contributed to the brand's rebound in basketball, with wholesale sales rising by 11 percent in constant currencies in the last fiscal year to about $1.9 billion. Another standout was action sports, which remains much smaller with wholesale sales of $470 million, but with an increase of 18 percent in constant currencies.

 

FY 11

 

Wholesale Revenues

Growth vs. FY 10

Nike Brand Category

   

Running

$2.8 billion

30%

Basketball

$1.9 billion

11%

Football (Soccer)

$1.8 billion

8%

Men's Training

$1.7 billion

15%

Women's Training

$842 million

13%

Action Sports

$470 million

18%

Sportswear

$5.1 billion

3%

Nike Golf

$623 million

-4%

     

Other Brands

   

Cole Haan

$518 million

12%

Converse

$1.1 billion

15%

Hurley

$252 million

14%

Umbro

$224 million

2%

Charlie Denson, president of the Nike brand, focused on the example of North America, where Nike sharply implemented the category offense and reshaped the market by launching new retail formats in partnerships with retailers – such as the Fieldhouse stores at Dick's Sporting Goods, the Nike Track Club set up with the Finish Line, and Foot Locker's House of Hoops.

Nike has forged three-year partnerships with these retailers, which have turned out to be most profitable for both parties so far. It has also been working closely with major retailers in other regions, such as Centauro in Brazil, Kamo in Japan and even Sports Direct in the U.K., which otherwise focuses on price-aggressive ranges.

Nike managers reaffirmed their expectations that the group would reach mid-single-digit average annual sales growth in the five fiscal years until the end of May 2015 in its established markets, from North America to Western Europe and Japan. For its developing markets, from Greater China to central and Eastern Europe, and the Emerging Markets unit, the company reiterated its expectation of average low-double-digit growth.

Nike reached sales of $2.1 billion in China alone in the last fiscal year. It has doubled its turnover in the market since 2007 and is confident it could do so again by 2015, compared with 2010. The expansion should not only be based on more franchised stores, as in the last years, but also on more Nike-owned stores and multi-brand retailing, which Nike sees emerging in China.

Brazil was recurrently highlighted as another market with huge potential for the Nike brand. The company expects to reach sales of $1 billion in the country after the 2016 Olympics, by which time Brazil would be Nike's third-largest market.

As for Western Europe, Gary de Stefano, president of global operations for the Nike brand, admitted that it had been a slow market for Nike in the last years. However, he pointed to several countries where Nike had enjoyed strong double-digit growth in the last fiscal year, such as Germany. He said it was increasingly turning into a performance-driven market, which played to Nike's strength.

Nike's largest markets in central and Eastern Europe are Turkey and Russia. Both of them are countries where Nike trails behind its rivals, which De Stefano chose to regard as a major opportunity. He said Russia was the country where Nike had seen the fastest expansion in the last fiscal year, and it could become a market with sales of $1 billion for Nike. Turkey is another target for investment, for example through a new sponsorship deal with Galatasaray, the football club in Istanbul.

As for its other brands, the group estimated that it was on track to double revenues from Converse, Hurley and Umbro by the end of the fiscal year 2015, compared with the fiscal year ended in May 2010. For the fiscal year ended last May, these three brands, along with Nike Golf and Cole Haan, achieved sales of $2.7 billion and Roger Wyett, president of Nike affiliates, estimated that they reached wholesale equivalent sales of $3.8 billion (adding sales of licensees).

The management of the other brands unit sees much of the growth in the next years coming from Converse. This brand generated revenues of $1.1 billion for the last fiscal year, up by 15 percent. Wholesale-equivalent sales by Converse licensees were estimated at $1.3 billion, adding up to a turnover equivalent to $2.4 billion at wholesale.

The brand's rocketing sales in the last years have been propelled by the Chuck Taylor range, whose sales have jumped from 2 million pairs in the 2004 fiscal year to 70 million pairs for the last fiscal year. For amateurs of statistics, this amounts to almost 200,000 pairs of Chucks sold every day.

Still, the Nike group is confident that it could lift Converse's sales to $2.2 billion for the fiscal year 2015, by continuing to expand the product range, tripling its own retail sales and taking over control of more markets – as was already done for the U.K. and should be done in China from the start of next year. The Nike group even targets $4 billion in wholesale-equivalent sales for the Converse brand.

Hurley's sales reached about $252 million for the last fiscal year, up by 14 percent. Again, the Nike group wants to double these sales and reach a turnover of about $500 million by 2015. Among the strategic moves envisaged by the brand are the expansion of its offering to four seasonal ranges, global distribution and more e-commerce.

As for Umbro, its sales inched up by 2 percent to $224 million for the last fiscal year, with an estimated $300 million in wholesale-equivalent sales achieved by licensees. The Nike group wants to lift Umbro's turnover to about $450 million for the fiscal year 2015, by investing in Umbro lifestyle apparel and more direct distribution, in China and other markets.

Turning to own retail operations, the company estimates that it will have about 850 owned stores for the Nike brand and about 300 own stores for its other brands by the end of the fiscal year 2015. Its direct-to-consumer business is expected to enjoy average annual growth in the mid-teens across all of its markets for the five-year period.

The target is to reach $5.6 billion in sales from own retailing (including online sales) in the fiscal year 2015, which could amount to a share of up to 20 percent of the group's targeted overall sales. This compares with sales of $3.2 billion from own retailing for the fiscal year ended in May 2011, up by 16 percent and amounting to 15.3 percent of the group's entire revenues.

From a financial standpoint, the company reaffirmed its goal of generating $12 billion of cumulative free cash flow from operations from fiscal 2011 through to fiscal 2015. Apart from high-single-digit revenue growth, the group's primary targets include an average annual rate of growth for earnings per share in the mid-teens and a 25 percent return on capital invested.