Wide-moat Nike exceeded our sales and margin expectations in fiscal 2020's first quarter, led by growth in greater China and Nike's digital efforts (42% currency-neutral growth). The firm beat our forecast of 5.5% sales growth with 7.2% (10% currency-neutral) growth in the quarter. Nike bettered our growth expectations in all regions, including greater China, where we believe it continues to take share from both native and international brands. Nike's 21.8% (27% currency-neutral) growth in the region beat our forecast of 16.0% growth due, in part, to 70% digital growth. We forecast greater China will grow to 30% of revenue in fiscal 2029 from 16% of revenue in fiscal 2019. Greater China, Nike's most profitable region, produced an operating margin of 39.8% in the quarter and contributed to a strong overall operating margin of 15.1%. This result beat our forecast of 12.7% and represented a year-over-year improvement of 170 basis points. While greater China was a standout, Nike also performed well in North America and Europe, the Middle East, and Africa, where we believe it continues to benefit from the athleisure fashion trend and its traditional dominance in performance apparel. Also, we think its efforts to restrict its product to key wholesale partners and its own direct-to-consumer channels are working. For example, Nike's digital revenue in North America increased by more than 30% in the quarter.
Overall, Nike's EPS of $0.86 in the first quarter handily beat our forecast of $0.70. We expect to increase our fair value estimate of $98 by a low-single-digit percentage. We view the quarterly report as particularly impressive considering the unfavorable strengthening of the United States dollar and a generally difficult apparel market in North America. Although Nike appreciated more than 4% after the quarterly announcement, we view shares as undervalued.
We view wide-moat Nike as the leader of the athletic apparel market. Our wide moat rating is based on Nike's intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running ($5 billion in annual sales) and basketball ($4 billion in annual sales) with well-known brands like Jordan, Air, and Pegasus. Nike faces significant competition, but we believe it has proved over a long period that it can maintain share and pricing.
We think Nike's strategies allow it to maintain its leadership position. In mid-2017, Nike announced a consumer-focused realignment. Nike is investing in its direct-to-consumer network while reducing the number of retail partners that carry its product. The firm is reducing its exposure to mediocre, undifferentiated retailers while increasing distribution through a small number of retailers, like narrow-moat Nordstrom, no-moat Dick's Sporting Goods, and Foot Locker, that bring the Nike brand closer to consumers. At Nordstrom, for example, Nike operates its own shops with its own salespeople, allowing it to control the brand message. Nike's consumer plan is led by its Triple Double strategy to double innovation, speed, and direct connections to consumers. Triple Double includes cutting product creation times in half, increasing membership in Nike's mobile apps, and improving the selection of key franchises while reducing its styles by 25%. We think these strategies will allow Nike to hold share and pricing.
We believe Nike has a great opportunity for growth in China and other emerging markets. Nike has experienced double-digit growth in each of the last four fiscal years in China, and we expect it will continue to do so for at least the next 10 years. Nike should benefit from heavy investment in sports by the Chinese government. Moreover, Nike, with worldwide distribution and $3.8 billion in fiscal 2019 digital sales, will benefit as more people in China, India, Latin America, and other emerging countries move into the middle class and gain broadband access.
We maintain a wide moat rating on Nike based on its intangible brand asset. Nike is the largest athletic apparel company in the world. Its revenue more than doubled in the past 11 years to $39.1 billion in fiscal 2019 from $18.6 billion in fiscal 2008 and has increased in 10 of the past 11 years. Nike produces apparel and footwear for professional and amateur athletes, sports equipment, and sports-inspired fashion for both athletes and nonathletes alike. As evidence of its competitive edge, Nike's adjusted ROICs, including goodwill, have averaged 33% over the past 10 years. We forecast that the company's average annual adjusted ROICs, including goodwill, will exceed its weighted average cost of capital over the next 20 years, as required for our wide moat rating. We estimate Nike's weighted average cost of capital at 9% and expect its adjusted ROICs, including goodwill, to average 44% over the next decade. We believe Nike has been the preferred sportswear brand in the world since the 1980s and that it will remain so for many years.
Nike achieves premium pricing on many products, supporting our view of its brand power. Its performance athletic shoes are the most expensive on the market. At no-moat Dick's Sporting Goods, for example, Nike produces 70% (30 of 43) of the styles of men's soccer cleats that cost more than $200 per pair. At footlocker.com, Nike produces 92% (24 of 26) of the styles of the men's performance basketball shoes that cost $175 or more per pair. At finishline.com, Nike produces 94% (32 of 34) of the styles of men's running shoes that cost $190 or more per pair. Some fashionable Nike shoes retail for prices associated with luxury footwear brands. Luxury retailer farfetch.com lists 21 styles of Nike sneakers at prices above $1,000 per pair and dozens more that retail for at least $300 per pair. Moreover, as evidence of Nike's enduring popularity, older and limited-edition Nike shoes are regularly sold in resale markets for thousands of dollars per pair.
We believe Nike's wide moat is supported by its worldwide reach. The company ships products to more than 30,000 retailers in more than 190 countries. In 2018, Nike shipped about 1.3 billion units and had about 110,000 points of distribution. Nike operates 1,200 stores (two thirds outside of the U.S.) itself and another 6,000 or so Nike-branded stores are operated by franchisees throughout the world. Nike's $39.1 billion in fiscal 2019 revenue was about 60% greater than that of its closest competitor, narrow-moat Adidas. Nike produced $24.2 billion in fiscal 2019 footwear sales, more than the combined footwear sales of Adidas, Puma, and no-moat Under Armour. Nike has market-leading share in footwear in all markets and major categories and ships about 800 million pairs of shoes per year. Nike is also the leader in athletic apparel, producing $11.6 billion in apparel sales in fiscal 2019. Although Nike is an American brand, 59% of its fiscal 2019 revenue was produced outside of North America. We believe that no athletic apparel company will be able to approach Nike's global market share in at least the next 20 years, supporting our view that it has a wide moat.
Nike's brand is enhanced by its large e-commerce business in the U.S. and other countries. We estimate that Nike generated about $3.8 billion in e-commerce sales from its digital marketplaces in fiscal 2019, up from about $1.5 billion in fiscal 2015. Nike expects digital sales to increase to as much as 30% of its sales by 2023. We think this growth is achievable as more consumers in developing markets (such as China, India, and Latin America) move into the middle class and gain access to broadband services. Nike is investing heavily in its digital services. Its apps, known as NikePlus, have more than 100 million members. Its Training Club and Run Club apps are the largest apps in their fields in the U.S. and Europe. Its SNKRS app for hard-core shoe collectors reportedly has several million members. Nike produces limited-edition products that are exclusive to members of NikePlus. For example, more than one third of Cristiano Ronaldo's Mercurial soccer cleats are available only on nike.com and its apps. Many Nike-sponsored athletes, including Ronaldo and Brazilian soccer star Neymar, have tens and even hundreds of millions of social media followers. Nike uses their fame to promote its products to a huge audience at relatively low cost. The firm supports its e-commerce with some innovative digital products, such as NikeConnect, a service that allows people to take a picture of a Nike product and identify it. This is a useful service, as Nike estimates there are 5 billion individual Nike products in the world. We believe Nike's large digital community creates goodwill among its best customers and promotes the brand. While other athletic apparel companies have e-commerce, none of them have the reach of Nike. We think Nike's apps support our wide moat rating.
Nike sponsors many of the world's most popular athletes and teams in virtually all major sports. It has endorsement deals with 54 of the 100 athletes on Forbes' 2018 list of the world's highest-paid athletes. Athletes sponsored by Nike include Cristiano Ronaldo (soccer), Neymar (soccer), LeBron James (basketball), Kevin Durant (basketball), Kyrie Irving (basketball), Mike Trout (baseball), Giancarlo Stanton (baseball), Rafael Nadal (tennis), Serena Williams (tennis), Simone Biles (gymnastics), Matt Ryan (football), Alex Morgan (soccer), many track and field athletes, and retired basketball players Michael Jordan and Kobe Bryant. Teams and leagues sponsored by Nike include the NFL, the NBA, many U.S. and international college teams, many national soccer leagues, and the national soccer teams of numerous nations, including Brazil, France, and England. Nike is the sponsor of choice for athletes and teams due to its status as the world's largest apparel brand and the tremendous success of its 35-year relationship with Michael Jordan. LeBron James famously turned down more money from Reebok to sign with Nike in 2003, ultimately dooming Reebok to irrelevance in basketball shoes. In 2019, Nike's Jordan Brand bested all rivals to sign NBA rookie Zion Williamson. Whether sponsored or not, professional and amateur athletes all over the world wear Nike apparel while competing. For example, its Mercurial line of soccer cleats is the most popular brand in England's Premier League. Also, 73% of the players in the NBA wear Nike or Jordan shoes. We expect Nike's powerful brand will continue to allow it to sign the key endorsement deals that will keep it on top.
Nike's brands have proven staying power, supporting our view that it can continue to earn economic profits for at least the next 20 years. Michael Jordan signed with Nike in 1984 and retired from basketball in 2003. Many millennials are not even old enough to have seen him play. Yet, the Jordan brand produced more than $3 billion in (wholesale-equivalent) sales in fiscal 2019. If it was an independent company, the Jordan brand would be the third-biggest athletic footwear brand in the U.S. behind only other Nike footwear and Adidas. While Jordan is Nike's biggest star, Kobe Bryant and LeBron James have also proved they can sell shoes over a long period. Bryant's signature shoes remain big sellers and are worn by more NBA players than any other, even though Bryant retired in 2016. James' shoes, meanwhile, have been big sellers for Nike since he was a teenager. He signed a new contract with Nike in 2015 that will reportedly pay him $30 million per year until 2048 (when he celebrates his 64th birthday). Nike, which ships about twice as many pairs of shoes worldwide as Adidas, has developed franchises with unusual longevity. We think Nike's key brands support our view that it has a wide moat based on its brand intangible asset.
We believe Nike's innovations contribute to its brand and support our wide-moat view. Nike has been known for its innovative products ever since it introduced running shoes with pressurized air in their soles in the 1980s. Nike frequently releases new styles of running shoes. Recent editions to its large family of shoes include Epic React (foam cushioning), VaporMax (new style of Air), and shoes with ZoomX technology. ZoomX is Nike's answer to Adidas' popular Boost line of running shoes. Nike claims the ZoomX substance was developed for the aerospace industry and returns as much as 85% of energy to the runner. While it may be hard to prove this claim, Nike's dominance in running shoes is clear as the category produces more than $4 billion in sales for the company. Most of the world's leading track and field athletes wear Nike shoes. Nike's innovation allows it to maintain premium pricing. Many Nike running shoes, such as the best-selling Air Zoom Pegasus, sell at prices over $100 per pair. Nike Air Vapor Max, which sell for about $190 per pair at Foot Locker, reportedly became the best-selling running shoe above $150 per pair within months of its launch in 2017. We believe Nike is the leader in sports performance technology, providing a persistent competitive edge.
We do not believe Nike has a moat based on a cost advantage. Nike may have some cost advantage over competitors in sponsorships due to its status as the premier sportswear brand. But we don't view this as significant or sustainable. The cost of sponsorships has been rising as new companies (including Puma, New Balance, narrow-moat Anta, and Under Armour) have become active in the market. Moreover, while endorsements are great for brand building, they are difficult to quantify in terms of profit margins. While Nike's operating margins of 12% to 13% are very good, it is difficult to know if endorsements play a major role. It is possible that Nike simply has expense leverage due its size. Nike has limited advantage in product costs as virtually all its production is outsourced to more than 400 independent factories in about 40 countries. Narrow-moat Shenzhou International, for example, is one of Nike's largest suppliers but also produces apparel for Adidas, Puma, and others. We do not believe, therefore, that Nike has a moat based on any cost advantage.
We do not believe Nike has a moat based on anything aside from its brand intangible asset. We do not think it has a moat base on efficient scale. While Nike's financial resources and relationships with suppliers likely allow for production investment unavailable to others in the short term, any advantage in this area is unlikely to be sustainable. Competitors can probably gain access to similar technologies. Moreover, much of apparel manufacturing remains manually intensive. We do not believe there is any network effect in the apparel business and switching costs are nonexistent. Competing products to Nike's footwear and clothing are widely available.
We maintain our fair value estimate on Nike of $98. Our fair value estimate implies a fiscal 2020 adjusted P/E of 34 and a 2019 EV/adjusted EBITDA of 24. Nike's fiscal 2019 fourth-quarter sales of $10.18 billion slightly exceeded our $10.16 billion forecast. In greater China, sales growth of 15.6% (22% currency-neutral) beat our estimate of 13.0%. Nike's fourth quarter EPS of $0.62 came in just below our $0.63 forecast due to a difference in share count and a higher tax rate. However, Nike's tax rate has declined over the past few years as the company has avoided taxes by using offshore accounts in low-tax jurisdictions. We expect Nike will achieve sales growth in the high-single digits (excluding currency) in fiscal 2020. We think currency headwinds may reduce Nike's fiscal 2020 first-quarter gross margin by 50-70 basis points. We forecast 40- and 60-basis-point improvements in Nike's gross and operating margins in fiscal 2020.
We expect average annual sales growth rates for Nike of 7% over the next 10 years. We expect Nike will achieve annual growth rates of 3% to 5% in the North America market, in line with expected market growth. We think Nike's innovative product and e-commerce will allow it to hold its market position and premium pricing. In Greater China, Nike's fastest-growing segment, we expect annual growth rates of 13% or higher for at least the next 10 years. Nike, the market leader in China, is poised to benefit from high investment in sports by the Chinese government and the growth of the Chinese middle class.
We think Nike's operating margins will rise as it increases sales in profitable markets. We forecast operating margins will gradually increase to 17% from 12% in fiscal 2019 over the next decade. In greater China, Nike has achieved segment operating margins above 35% in each of the last four years and we think it will continue to do so. Nike is viewed as a premium brand in China and its product achieves premium pricing. We expect will continue to take share from weaker native brands. In North America, we forecast segment operating margins of about 25%, in line with the segment operating margin achieved in fiscal 2019. We think Nike can overcome discounting at mass retailers through e-commerce and specialty retail.
We forecast Nike's gross margins will improve to 48% in fiscal 2028 from 45% in fiscal 2019. Nike may increase gross margins through greater production and distribution efficiencies and price increases.
We assign a medium uncertainty rating to Nike. The firm is exposed to weakness in U.S. physical retail. Department stores that carry Nike products, including no-moat Macy's and J.C. Penney, have closed stores and are likely to close more. In 2018, department store chain Bon-Ton, which carried Nike products, went bankrupt and closed its stores. The sporting goods channel has also been challenged. The 2016 shutdown of Sports Authority affected Nike and other athletic apparel companies in the U.S. In response, Nike took the possibly unprecedented step of reducing its minimum advertised price to move excess inventory. Nike may be able to make up for weakness in some areas of retail through direct-to-consumer sales and sales through retailers that are not closing stores, such as narrow-moat Nordstrom.
The athleisure trend and growth in activewear has attracted new competition. While Nike is the market leader in many categories and many markets, some competitors have found success with fashionable specialty products. Narrow-moat competitors Adidas, VF's Vans, and Lululemon have grown faster than Nike in North America over the past few years. Some of these competitors are expanding outside of North America to markets like China, where they will directly compete with Nike. Nike also faces competition in China from native brands like narrow-moat Anta Sports Products. While competition is nothing new for Nike, changing fashion trends could affect some of its product lines.
Nike's production is outsourced to roughly 400 factories in more than three dozen countries. As factories in China produce about 26% of Nike's footwear and apparel, any trade dispute between China and the U.S. that increases tariffs or other barriers to trade could entail higher costs. But we think any trade disputes will be short-lived. Moreover, Nike can likely shift some production to countries like Vietnam and Indonesia if necessary.
We assign a Standard stewardship rating to Nike. Over the past 15 years (as of July), Nike has a generated an average annual return to investors of 17%, well above the 10% average annual return of the Morningstar U.S. Market Total Return Index. Nike is the largest U.S.- based apparel firm and the largest athletic apparel company in the world. Nike's revenue has more than doubled over the past 11 years, having increased to $39.1 billion in fiscal year 2019 from $18.6 billion in 2008. Nike's adjusted ROICs, including goodwill, have averaged 35% over the past five years, well above its estimated weighted average cost of capital of 9%.
Nike has had stable management. In 2004, Phil Knight, who co-founded the company in 1964, resigned as CEO but remained chairman. In 2006, Mark Parker was named CEO. Parker has been employed by Nike since 1979 and has served in a few different managerial roles at the company. In 2015, Nike announced an ownership and management transition plan. The company announced Knight would retire as chairman and be replaced in the position by Parker. Further, Phil Knight's son Travis, a professional animator, joined Nike's board. At the same time, Nike announced that Phil Knight had transferred most of his Class A shares to a new company called Swoosh. The Class A shares are not publicly traded but can be exchanged one for one into the publicly traded Class B shares. Under Nike's structure, the Class A shareholders appoint 75% of Nike's board while the Class B shareholders appoint the rest. Swoosh is governed by a board of directors with four members, including Parker and Travis Knight (who has two out of five total votes). Thus, a few insiders can appoint most of Nike's board. Phil Knight continues to attend Nike board meetings as its nonvoting chairman emeritus. We view Nike's governance structure as suboptimal, as outside shareholders have limited say in the composition of its board. Also, we prefer the CEO and chairman roles to be split to improve oversight of management. However, we believe that Nike's governance structure has worked well for shareholders and provides stability.
Nike's board consists of 12 members, 10 of whom are considered independent. Parker is the only board member who also serves as an executive. There is a lot of management and business experience on Nike's board. We think it could use more representation from the apparel industry, though.
We think Nike's compensation policies could be improved. Executives receive most (80% or more in fiscal 2019) of their annual compensation based on performance targets rather than salary. We view compensation plans of this type as favorable as they encourage executives to create value for shareholders. However, Nike's performance-based annual cash bonuses are based solely on earnings before interest and taxes, and its long-term bonuses are based on EPS and revenue targets. We prefer performance targets based on ROICs and cash flows, as these create value for shareholders.
We think Nike has created value through acquisitions and dispositions. In 2003, Nike bought Converse for $305 million. Converse, known for its casual athletic canvas shoes, had gone bankrupt in 2001 and had just $205 million in sales in 2002. The Converse deal has been successful. In fiscal 2019, the brand produced $1.9 billion in sales and more than $300 million in operating profit. While Nike continues to own Converse, it has divested other brands. In 2012, for example, it sold Cole Haan for $570 million, 24 years after it had bought it for $95 million. We view dispositions of niche brands as beneficial to shareholders as they allow Nike to focus on its core business.
Nike has returned significant cash to shareholders through dividends and stock buybacks. The company will issue about $1.5 billion in dividends in fiscal 2019. Nike's dividend payout ratio has been around 30%, and we expect it will maintain a dividend payout ratio around this level. Nike also returns cash to shareholders through buybacks. In November 2015, the company authorized a four-year, $12 billion stock repurchase program. In June 2018, its board authorized a new four-year, $15 billion stock repurchase program. Nike completed the 2015 buyback in the third quarter of fiscal 2019, having repurchased 192.1 million shares at an average price of $62.47. Nike is now repurchasing stock under the 2018 program. Nike has reduced its share count by approximately 18% over the past decade, and we expect it will repurchase more than $17 billion in stock in over the next five years. But we believe that Nike reduces shareholder value if it repurchases shares at prices above our fair value estimate. In 2014-15, Nike repurchased billions of dollars of shares at prices above our fair value estimate. If the company had halted buybacks instead, it could have conserved cash for greater share buybacks in 2016-17 at prices below our fair value estimate.
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