Over the past couple of years, Nike (NKE) - Get NIKE, Inc. Class B Report ended its relationship with a number of retailers. Basically, if it wasn't a chain that featured the company's shoes, Nike decided it would rather try to capture those sales through its core partners and its direct-to-consumer business.
That strategy appears to have been working: The sneaker and athletic apparel maker grew Nike Direct sales by 9% in the second quarter of its fiscal 2022, it reported via earnings Monday.
DTC sales accounted for $4.7 billion, or a little over 41%, of its total Q2 revenue of $11.4 billion.
"Nike's strong results this quarter provide further proof that our strategy is working, as we execute through a dynamic environment," said CEO John Donahoe in the Q2 earnings release. "We are now in a much stronger competitive position today than we were 18 months ago."
Nike Wants to Cut Out the Middleman
Nike has been investing heavily in building out a DTC model. Donahoe made it clear that doing that has been a smart decision given current market conditions.
"Today, we're in a stronger position relative to our competition than we were prior to the pandemic," he said during the Q1 earnings call.
"Why? Because the changes happening in the market work in our favor. Consumers shift to digital that might have taken five years, will now only take two," he said. "That plays to NIKE's advantage and our consumer-direct acceleration strategy is capitalizing on this marketplace transformation."
Direct sales grew by 30% in the U.S. while sales at company-owned stores were up 4%
Nike Just Does It
Most of Nike's revenue, $10.8 billion came from its signature brand while its Converse brand delivered $557 million in sales. Overall revenue was up 1% year-over-year.
Gross margins rose to 45.9% due to "margin expansion in our Nike Direct business driven by lower markdowns, a higher mix of full-price sales and changes in foreign currency exchange rates, partially offset by lower full-price product margins largely due to increased freight and logistics costs," the company reported.
Nike ended the quarter with $6.5 billion in inventory on hand, a 7% increase over the prior year. That's due to "elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions, partially offset by strong consumer demand during the quarter."
The company closed the quarter with $15.1 billion in cash, equivalents, and short-term investments, a $3.3 billion increase over the year-ago period.