Footwear and apparel company Nike reported higher earnings for the first quarter of fiscal 2020 following its "Consumer Direct Offense" digital sales strategy.
Nike posted a 28% increase year-on-year in earnings per share or $0.86 per share for the quarter ending in August, attributed to a 7% surge in revenue and bigger gross margins in direct to consumer sales.
The digital strategy was announced by Nike in June 2017 and diverts from its traditional sales approach of selling its products through brick-and-mortar retailers. The strategy is aimed at speeding up innovation, producing and getting products to consumers faster and selling to and engaging with consumers more directly through digital channels.
Nike's stock went by by over 5% in after-hours trading on Tuesday.
According to the company, its direct-to-consumer business Nike Direct drove profitability, resulting to a 45.7% surge in gross margins. This was coupled with higher average product selling prices.
Nike chiefe executive officer (CEO) Mark Parker claimed that Nike's digital business grew by 42% in the quarter, led by mobile and app experiences. The company has been making investments to expand the membership of its SNKRS and Nike+ apps, as well as integrating those apps into the in-store experiences of customers.
However, Nike is also faced with challenges from the ongoing US-China trade war and tariffs that may push prices upwards for consumers in the US and the delay of the 10% tariff on footwear imports from China was a welcome news for the company.
Andy Campion, Nike's Chief Financial Officer, pointed out that the tariffs could hamper the company's growth in the next months. The company's growth in North America has slowed down from 6% in 2018 to just 4% for the quarter.
Meanwhile, Nike's sales in the fast-growing Chinese market dramatically surged by 27% during the same period.
Parker added "We strongly believe in the power of free and fair trade."
