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Nike expects strong performance in FY'20 despite tariff headwinds

NIKE Inc. on Sept. 24 maintained its revenue guidance and raised its gross margin outlook for fiscal 2020 despite the expected impact from existing tariffs on Chinese imports and the associated foreign exchange headwinds.

"Historically, we've effectively navigated through excessive duties, and we're confident that we'll continue to do so under the current dynamic," Nike's CEO, President, and Chairman Mark Parker said on a Sept. 24 earnings call

The company now expects gross margin for fiscal 2020 to grow between 50 to 75 basis points, compared to its previous forecast of a 50 basis points growth. Revenue for the full year is still projected to grow within a high single-digit range.

For the second quarter, gross margin is projected to grow by about 25 basis points, while revenue growth on a reported basis is expected to be in line with the 7% growth reported in the first quarter.

Although the impact of the tariffs is expected to last through fiscal 2020, Nike's CFO and Executive Vice President Andrew Campion is expecting the hardest hit in the second quarter. The Trump administration's Aug.1 announcement of additional tariffs on Chinese imports did not give the retailer "much time to manage any of the levers within our overall portfolio," Campion said.

For the second half of the fiscal year, Campion assured analysts that the company has "a lot of levers" to pull, including sourcing strategies to offset the impact of tariffs. With those mitigation strategies in place, gross margin growth is expected to pick up pace in the third and fourth quarter, according to Campion.

The Trump administration raised tariffs on $300 billion worth of Chinese imports to 15% from 10% in August. The first batch of duties went into effect Sept. 1, while the second batch is scheduled to go into effect Dec. 15. An expected increase in tariffs on $250 billion goods was delayed to Oct.15 from Oct.1.

Campion also highlighted the 42% growth in the company's digital business during the first quarter. The double-digit growth was driven by improved digital services and the international expansion of the Nike and SNKRS apps. Both apps are now available in over 20 countries, according to Campion.