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Nike NKE announced that its board of directors raised its quarterly cash dividend by 9% to 37 cents per share. The quarterly dividend will be paid out on Jan 2, 2024 to shareholders of record at the close of the business on Dec 4, 2023. This marks the 22nd successive year of a dividend hike.
The company has a five-year annualized dividend growth rate of 10.5%, reflecting dividend increases for five consecutive years. NKE’s current dividend payout ratio is 42%.
Over the past 14 years, the company has distributed regular dividends and made share repurchases to improve shareholder returns. In the first quarter of fiscal 2024, Nike returned $1.7 billion to shareholders, including $1.1 billion in share repurchases and $524 million in dividends.
The dividend increase is likely to come as a relief for investors since the company raised concerns about persistently higher costs, including the elevated cost of inputs and materials used in production. Also, Nike has been witnessing significant expenses under the demand creation expense head. For NIKE, these expenses encompass a wide range of initiatives, including advertising campaigns, sponsorships, events and digital marketing efforts. For the fiscal second quarter, SG&A expenses are expected to increase in the mid-to-high-single digits due to increased demand creation investments.
However, Nike continues to benefit from its business strategy, compelling product innovation and digital leadership. Also, continued progress in its Consumer Direct Acceleration strategy boosted retail sales across the Nike Direct and wholesale businesses in the first quarter of fiscal 2024. Sales at NIKE Direct improved 6% on both reported and currency-neutral basis, driven by improved traffic at stores and online.
Effective inventory management strategies remain a key growth driver. Nike’s first-quarter fiscal 2024 performance gained mainly from its return healthy inventory position. Total inventory units across the marketplace, including Nike and its wholesale partners, declined in double digits versus the prior year. Partner-owned inventory units were in line with the prior year, with levels planned to remain lean through the fiscal second quarter, which is a positive feat following the higher levels of wholesale sell-in in fiscal 2023.
Its digital business has been gaining from underlying consumer trends, including sustained momentum in the NIKE mobile app, led by improved traffic and increasing member buying frequency. In the fiscal first quarter, the NIKE Brand’s Digital revenues improved 2% on both reported and currency-neutral basis on liquidation actions and a higher number of product launches on the SNKRS App in fiscal 2023.
Driven by the abovementioned factors, management expects fiscal 2024 revenues to grow in the mid-single digits, driven by NIKE Direct. For the fiscal second quarter, NIKE anticipates revenue growth to be up slightly from the prior year due to difficult comparisons from last year’s solid growth. Our model estimates total NIKE Brand revenues to increase 3.9% year over year in fiscal 2024, with a 4.2% rise in wholesale revenues and 3.6% growth in direct-to-consumer revenues.
The fiscal 2024 gross margin is envisioned to expand by 140-160 bps on a reported basis. The gross margin improvement is expected to result from the start of the recovery from transition-related headwinds, particularly more favorable ocean freight costs and modest gains from markdowns compared with the last year.
The gross margin for the fiscal second quarter is likely to expand 100 bps, driven by gains in strategic pricing, improved markdowns and lower ocean freight rates. We expect the gross profit to increase 3.1% year over year in the second quarter of fiscal 2024, with a 100-bps expansion in the gross margin to 43.9%. For fiscal 2024, our model predicts a 7.1% increase in the gross margin, with a 150-bps expansion in the gross margin to 45%.