Apple's Tim Cook May Watch Nike Whiff on Huge 2020 Sales Goal

Nike is on track to miss its ambitious $50 billion 2020 sales target.
By Brian Sozzi ,

Nike's (NKE) - Get Report tech geek of a new lead independent director may preside over the sneaker king falling woefully short of one ambitious goal.

Nike said Thursday that Apple (AAPL) - Get Report CEO Tim Cook has assumed the lead independent director role at the athleticwear company. Cook is Nike's longest-serving board member, having joined in 2005. Co-founder Phil Knight officially retired from the board under a transition plan announced a year ago. He will become chairman emeritus, a position that gives him a standing invitation to attend board meetings. Nike CEO Mark Parker will become chairman. 

Cook takes his new position fresh off Nike wrapping up a year of slowing sales growth due to increased competition from Under Armour (UA) - Get Report and Adidas in the footwear category, sluggish spending on apparel in the U.S., and the debilitating effect of the strong U.S. dollar, which lowers the value of foreign-derived sales. 

Nike saw earnings for the fiscal fourth quarter ended May 31 unchanged against the prior year at 49 cents a share, narrowly beating Wall Street forecasts for 48 cents. Total revenue rose 6% year over year to $8.24 billion, or 9% when excluding the impact of the stronger U.S. dollar. Wall Street anticipated $8.28 billion in sales. For the year, total revenue gained 6% from the prior year to $32.4 billion, or 12% backing out the impact of the dollar. 

The mixed end to the year for Nike has now set it down a path to falling short of the lofty $50 billion sales goal it set for 2020.

Nike's Parker unveiled the aggressive long-term sales target at an investor presentation last October. To attain the target, Parker and other Nike execs on hand said they saw e-commerce sales increasing drastically to more than $7 billion from about $1 billion, a doubling in sales for the Jordan business to $4.5 billion, and the Nike women's business going to more than $11 billion in sales from about $5.7 billion.

Overall, the goal implied a roughly 10% compounded annual growth rate in sales.

Nike CEO Mark Parker may have promised too much to investors.

But the numbers no longer appear to add up -- not that they did at the time given increased competitive forces for Nike and global currency volatility --  according to data crunched by TheStreet. For the current fiscal year, Nike sees sales rising by a high single-digit percentage. Assuming a best case scenario this year based on Nike's guidance -- 9% sales growth -- Nike's sales would reach about $35.3 billion. Projecting out a respectable 9% sales growth rate for the next four years -- which is below Nike's implied growth target when it set its 2020 goal -- the company would only reach about $45.8 billion in sales by the year ended May 2020.

Implying 10% growth for the next four years, Nike's sales would only reach $47.4 billion for the fiscal year ended May 2020 in large part due to the weak conclusion to last year and likely below plan growth for this year.

Nike would have to grow sales by slightly more than 11% each of the next four years to approach $50 billion in sales for the year ended May 2020. The company hasn't grown its sales by over 10% since the fiscal year ended May 31, 2012 (16% growth to $20.1 billion in sales), a period in which Under Armour was a non-factor in footwear, Adidas was struggling mightily, the Sports Authority was still in business and the U.S. dollar was significantly weaker.

At least one Wall Street analyst doesn't expect Nike to come anywhere near $50 billion in sales by 2020. Morgan Stanley analyst Jay Sole, who rates Nike shares at equal-weight, sees Nike growing its sales by an average of 9.5% over the next four years, leading to about $46.5 billion in sales by the fiscal year ended May 2020. Sole lowered his sales growth estimates on Nike for each of the next three years following the company's lackluster fourth quarter. He left his estimate for 2020 -- 10.1% -- unchanged.

Will Nike mint $50 billion in sales by 2020?

"Competitive threats are rising, particularly in the U.S as Adidas and Under Armour have each been able to take share against Nike in specific product categories, and the trend could continue," Sole said.

Apple's Cook knows a thing or two about serving up disappointing guidance to Wall Street. Maybe it's time for him to nudge Nike's Parker into providing something more realistic for investors.  

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