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Nike, Inc. (NYSE:NKE) is a global leader in manufacturing and selling sports footwear, apparel, equipment and accessories, and the company seems to be recovering nicely from the pandemic. In fact, on Nov. 18, Nike raised its quarterly dividend by 11%, joining the dozens of tech and retail companies that have raised dividends in the second half of this year. Let's take a closer look at this company to see why I believe it is a rare combination of growth potential and shareholder returns.
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Positive industry outlook
According to Global Industry Analysts, the sports and fitness clothing market will reach a value of $221.3 billion by 2026, growing at a compounded annual growth rate of 4.4%. As consumers place a greater emphasis on healthy living choices, the worldwide sports and fitness clothing market continues to find opportunities to grow. Participation in sports and outdoor activities has soared in the last five years, and it would be reasonable to expect this trend to continue in the next five years as well, given that the young generation in many developed nations remains focused on maintaining healthy lifestyles. Fitness influencers, increased acceptance of functionality-specific clothes and footwear and technological advances are also driving this market expansion, and these factors are expected to aid the growth of the global athletic wear market in the foreseeable future.
Nike also benefits from its digital ecosystem, which could prove to be a catalyst for growth in the future given that digitalization is accelerating in both developed and emerging markets. Nike's digital sales increased by 29% in the first quarter of its fiscal year 2022, and total revenue climbed 16% year-over-year to $12.2 billion. The company is continuing to drive consumer-led digital transformation by developing a digital-first supply chain to support its digital expansion while focusing on providing a top-notch customer experience at every stage of the shopping journey.
Nikes focus is on improving the distribution network and forward-deploying inventory closer to the consumer, leveraging data and advanced analytics to improve service levels, minimize carbon footprint and lower order fulfillment costs. These growth strategies have supported the company in increasing shareholder wealth.
Nike ended the last quarter with $13.7 billion in cash and short-term investments, up by approximately $4.2 billion from the corresponding quarter of the previous year. This strong liquidity position helped the company return over $1.2 billion to shareholders in the quarter, including $435 million in dividends and $742 million in share repurchases. The company has a long history of distributing wealth to shareholders, with a 20-year track record of dividend growth. The recent dividend increase marks the companys 20th consecutive year of raising the dividend, demonstrating its dedication to increasing shareholder wealth in the long run.
Despite the robust growth in the last quarter, the company expects revenue growth to be in the low single digits in the next quarter due to supply chain issues that have impacted production and delivery times for the holiday and spring seasons. For the next few quarters, these problems are likely to result in inventory shortages, but these challenges are highly unlikely to be obstacles to the growth of the company in the long run.
Nike continues to focus on innovation to drive growth amid supply chain interruptions, and the recent dividend increase demonstrates the company's confidence in its financial position and ability to generate substantial cash flows in the short and long run.
This article first appeared on GuruFocus.