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Product Innovation

Digital Transformation Helps Drive Nike’s Earnings Run

The athletic company’s digitization efforts central to driving growth, executives say

Several years of investment into its digital transformation strategy appears to be proving an excellent fit for athletic footwear, apparel and equipment maker Nike, which reported last night that it beat Wall Street analysts’ expectations of earnings-per-share and top-line revenue. Nike CEO Mark Parker attributed much of the firm’s growth to its emphasis on digital initiatives.

“Our business momentum is being accelerated by our ability to scale innovation at a faster pace and expand new digital consumer experiences around the world,” Parker told investors during the aftermarket hours earnings call.

 While Wall Street analysts expected Nike earnings per share of 63 cents, Nike posted 68 cents per share last night in its fiscal 2019 third-quarter ended February 28, 2019. Top line revenue came in at $9.6 billion, beating estimates by $50 million.

Revenues for Nike, Inc. increased 7 percent to $9.6 billion, up 11 percent on a currency-neutral basis. Growth across Nike Direct, its direct-to-consumer digital effort, categories continued double-digit growth across footwear and apparel.

During the call,  Nike executives pledged that they would continue to invest into digital transformation initiatives from digital demand “sensing” to connected inventory to digitally-powered product design and development. For example, Nike CFO Andy Campion cited Nike’s “Consumer Direct Offense” as what’s delivering growth worldwide, particularly in China.  That’s the company’s plan to focus on 12 key city regions, consolidating its targeted geographies from six to four, a streamlined supply chain, and tighter digital relationships with its consumers.

“We will continue investing in key capabilities to drive Nike’s digital transformation and fuel strong profitable growth into next fiscal year and beyond,” Campion said.

Menwhile, Parker noted that digital transformation is helping the company to better engage customers.

“We view innovation as Nike’s number one competitive advantage.”

Mark Parker, Nike CEO

“We’re scaling the digital capabilities that’ll serve consumers more personally and we’re driving significant growth through our digital eco-system making Q3 NIKE Digital’s first billion-dollar quarter,” he said. “While we view innovation as Nike’s number one competitive advantage, our digital transformation will create even further separation. There are teams all over NIKE piloting new ideas and proving-out concepts. We’re testing, learning and optimizing at an incredible pace. ”

Some of those digital efforts cited by Parker include continuing to enhance the Nike+ membership to increase consumer personalization.

“When we offer more tailored product and experiences, we bring more value to the consumer and it opens up more opportunities to grow our business,” Parker said.

Parker said Nike extended a new, advanced algorithm in its apps that enable the company to reward its most active members.

“We added this data-driven format to the release of the NIKE App in Japan and it helped lead to the most successful launch ever,” he said.

Parker added that the Nike+ membership is central to creating a more seamless “physical to digital” retail experience and pointed to increased transactions and higher sales among Nike+ members. Another example was the Nike SNKRS app. Seventeen of the top 20 Sneakers highlighted in the app had 100 percent sell through.

On a constant-currency basis, the

Nike Digital is now a $1B per quarter business unit

Parker also pointed to the benefits of digitizing product creation teams. Nike recently digitized 6,000 footwear materials, which enables their design teams to build on one another’s work and more quickly meet market demand.

“Overall, our advanced digital tools are reducing lead times, driving sustainability, and leading to faster design cycles,” Parker said.

Through RFID technology, Nike is tracking its products from production through retail.

“Our RFID initiative is improving product visibility and is an important step toward integrating our diverse eco-system of physical and digital experiences, distribution centers, and contract factories,” Parker said. This will help Nike to more accurately match product supply and demand.

Last year Nike moved forward with two acquisitions. In March, the company acquired consumer data and analytics firm Zodiac Inc. Computer vision firm Invertex followed that. Invertex uses artificial intelligence and imaging technology to scan customer’s feet in store and make the best style and size of shoe for that customer.

“We’re seeing the early wins pile up in our digital transformation,” said Parker. “What’s so exciting is the more we invest in stronger digital capabilities, the more growth opportunities we uncover.”

Nike shares did experience a bit of a sell-off after it reported earnings, but analysts attributed that to investor profit-taking following Nike’s 17 percent increase in share price this year, compared to about 12 percent for the S&P 500.

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