Shares of sports apparel producer Nike (NYSE: NKE) were soaring Wednesday after the company reported a spike in its latest quarterly sales.

A recent uptick in interest and participation in sports-related activities has generally helped propel Nike’s global sales performance.

In its first fiscal quarter of 2020, the company’s revenues rose 7% year-on-year to US$10.7bn, driven by growth across all regions, led by its international business, which grew 16%.

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The firm’s gross margin increased 150 basis points to 45.7%, mainly on the back of higher average selling prices and margin expansion in NIKE Direct. This was partially offset by adverse foreign currency exchange rates and higher product costs.

Together, the increased sales and gross margin expansion helped drive Nike’s net income 25% higher to US$1.4bn, with diluted earnings per share up 28% to US$0.86.

In response, Nike’s stock led the consumer discretionary sector, surging more than 5.25% intraday Wednesday to a new 52-week high of around US$91.78, according to the IBKR Trader Workstation (TWS).

The S&P 500 was last up around 0.3% to 2974.90.

Hitting a Stride

Nike also appears to be operating with optimism about its digital capabilities, as well as rosy sentiment about growth in the sportswear industry.

The firm noted that it scored “a very strong” 42% growth rate in digital, “showing the power of more personal relationships with the consumer.”

Meanwhile, according to market research firm Grand View Research (GVR), the global sportswear market is expected to register a compound annual growth rate (CAGR) of 10.4% from 2019 to 2025. Its size was estimated at US$239.78bn in 2018.

GVR noted that increasing awareness about leading “a healthy lifestyle and about the health benefits of fitness activities, such as swimming, yoga, running, and aerobics, are expected to drive the market,” as well as the increasing “popularity of sports events, such as Soccer World Cup, Olympic Games, and Cricket World Cup.”

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Moreover, GVR said that rising cases of “work-related health issues, such as stress and obesity, are pushing more people to follow any sport and fitness activity, which is further increasing the demand for trendy and comfortable sportswear.”

GVR continued that the footwear segment held the largest market share in 2018 and is set to expand further due to rising product demand, including shoes for tennis, football, basketball, and other sports along with casual shoes inspired by sports shoes. It added that companies “like Nike are using high-end technology in the production of such footwear, such as using foam blown polyurethane,” which provides extra cushioning.

NIKE Brand sales were up 10% year-over-year in Q1’FY20 to US$10.1bn, driven by growth across NIKE Direct and wholesale, with key categories including Sportswear and the Jordan Brand, as well as continued growth across footwear and apparel.

Revenues for Nike’s Converse brand rose 8% over the same period to US$555m, due to growth in Asia and through digital globally, which was partially offset by declines in the U.S.

Fuel for the Long Run

Market participants generally anticipate that growth in the global sportswear industry will accelerate the fastest in the Asia-Pacific region, at a CAGR of more than 10% over the next six years.

Nike chair and CEO Mark Parker highlighted, for example, that NIKE is “a brand of China for China,” where the company has achieved double-digit growth in Greater China every quarter for more than five years. In the latest quarter, Nike continued that momentum with 27% revenue growth.

Parker also touted double-digit growth in its women’s business, with apparel revenue from the 2019 Women’s World Cup “4x bigger than it was for the 2015 event.”

Indeed, Fox Sports lists the FIFA Women’s World Cup France 2019 final as the most-watched soccer match on English-language television in the U.S. since the 2015 FIFA Women’s World Cup final.

The game outperformed the men’s 2018 FIFA World Cup final by +22% (roughly 11.4m), and the match was the most-streamed FIFA Women’s World Cup final in history, up +402% over the same match in 2015.

Nike CFO Andy Campion said that the firm’s “execution of the consumer direct offense will continue to fuel growth across our portfolio of key categories, key cities in key countries, as well as accelerate our growth against the outside long-term opportunities that we see in women’s, apparel, digital and international.”

Credit Profile and the Road Ahead

Nike has managed to maintain its investment-grade ‘A1’/’AA-’ (Moody’s/S&P) credit ratings with stable outlooks, amid steady debt management, healthy free cash flow and margin expansion.

However, at the end of Q1’FY20, the firm’s cash, equivalents, and short-term investments fell US$625m from the prior year to US$3.6bn, as share repurchases, dividends, and investments in infrastructure more than offset proceeds from net income.

During its fiscal first quarter, Nike repurchased 11.9m shares for around US$995m as part of its four-year, US$15bn authorized stock buyback program. As of August 31, 2019, the firm bought back a total of 23.5m shares under this program for roughly US$2.0bn.

Looking ahead, the company said it will face impacts from trade-related tariff effects from Q2 through Q4, with the “most pronounced” impacts in its second fiscal quarter.

Nike also guided for gross margin expansion in Q2 at roughly 25bps, with slightly greater expansion than that in the second half of the year. It also anticipates selling, general and administrative (SG&A) growth in Q2 in the high single-digit range, with around US$10m to US$30m in OIE income.