26 Sep Nike’s Q1 Blows Past Estimates
Nike Inc. reported earnings in the first quarter ended August 31 rose 25.2 percent and easily surpassed Wall Street’s targets. Currency-neutral sales grew 10 percent, led by a 27 percent jump in China and low-teens gains in both the EMEA and APLA regions. North America’s sales grew 4 percent.
Revenue increased to $10.7 billion in the first quarter, up 7 percent on a reported basis. The gains were driven by growth across all geographies. Wall Street’s consensus estimate had been $10.43 billion.
“Our strong start to FY20 highlighted the depth and balance of Nike’s complete offense,” said Mark Parker, chairman, president and CEO, Nike, Inc. “Nike’s strong product innovation, combined with our industry-leading digital experiences, continue to deepen our consumer relationships around the world.”
Diluted earnings per share for the quarter was 86 cents per share, an increase of 28 percent driven primarily by strong revenue growth and gross margin expansion. Wall Street’s consensus estimate had been 71 cents.
“Our targeted strategic investments are accelerating Nike’s digital transformation and extending our competitive advantage, ” said Andy Campion, executive vice president and chief financial officer, Nike, Inc. “Even amidst the increasingly volatile macroeconomic and geopolitical environment, we expect our unrelenting focus on better serving the consumer to continue fueling strong, broad-based growth across our global portfolio.”
First Quarter Income Statement Review
- Revenues for Nike, Inc. increased 7 percent to $10.7 billion, up 10 percent on a currency-neutral basis.
- Revenues for the Nike Brand were $10.1 billion, up 10 percent on a currency-neutral basis
driven by growth across Nike Direct and wholesale, key categories including Sportswear
and the Jordan Brand, and continued growth across footwear and apparel.
- Revenues for Converse were $555 million, up 8 percent on a currency-neutral basis, mainly
driven by double-digit growth in Asia and through digital globally, which was partially offset
by declines in the U.S.
- Gross margin increased 150 basis points to 45.7 percent primarily due to higher average
selling prices and margin expansion in Nike Direct, partially offset by impacts from changes in
foreign currency exchange rates and higher product costs.
- Selling and administrative expense increased 9 percent to $3.3 billion. Demand creation
expense was $1.0 billion, up 6 percent primarily driven by higher advertising expenses and
sports marketing investments. Operating overhead expense increased 10 percent to $2.3
billion driven by continued investments in transformational capabilities, particularly in Nike
Direct and global operations.
- The effective tax rate was 12.4 percent, compared to 14 percent for the same period last year,
primarily due to discrete items which favorably impacted the quarter.
- Net income increased 25 percent to $1.4 billion driven primarily by strong revenue growth and
gross margin expansion while diluted earnings per share increased 28 percent to $0.86
reflecting a 2 percent decline in the weighted average diluted common shares outstanding.
Nike Brand revenues grew 7.2 percent on a reported basis to $10.1 billion and 10 percent on a currency-neutral basis. EBIT (earnings before interest & taxes) advanced 17.5 percent to $1.86 billion.
By region, North America revenues for Nike Brand were up 3.6 percent to $4.29 billion while expanding 4 percent on a currency-neutral basis. EBIT inched up 2.1 percent to $1.1 billion.
In the EMEA (Europe, Middle East & Africa) region, sales for Nike Brand reached $2.77 billion, up 6.4 percent on a reported basis and 12 percent on a currency-neutral basis. EBIT climbed 21.6 percent to $609 million.
In Greater China, Nike Brand sales climbed 21.8 percent to $1.68 billion and advanced 27 percent on a currency-neutral basis. EBIT expanded 33.3 percent to $669 million.
APLA (Asia Pacific & Latin America) revenues for Nike Brand grew 5.9 percent to $1.35 billion and climbed 13 percent currency-neutral. EBIT rose 5.6 percent to $341 million.
Converse’s revenues were up 5.3 percent on a reported basis to $555 million and added 8 percent on a currency-neutral basis. EBIT jumped 40.8 percent to $138 million.
August 31, 2019 Balance Sheet Review
- Inventories for Nike, Inc. were $5.8 billion, up 12 percent compared to the prior year period,
reflecting strong consumer demand globally, and to a lesser extent, the impact from changes in
foreign currency exchange rates.
- Cash and equivalents and short-term investments were $3.6 billion, $625 million lower than
last year as share repurchases, dividends, and investments in infrastructure more than offset
proceeds from net income.
Nike, Inc. adopted Accounting Standards Update No. 2016-02 Leases (Topic 842) in the first
quarter. In connection with the adoption, the Company’s balance sheet as of August 31, 2019
reflects the addition of operating lease right-of-use assets and operating lease liabilities.
During the first quarter, Nike, Inc. repurchased 11.9 million shares for approximately $995 million
as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of
August 31, 2019, a total of 23.5 million shares had been repurchased under this program for
approximately $2.0 billion.