Nike Q1 Blows Past Street Estimates

Nike Q1 Blows Past Street Estimates

Nike Inc. reported earnings rose 22.6 percent in the first quarter ended Aug. 31, to $1.8 billion, or $1.34 a share, easily above Wall Street’s consensus estimate of $1.19 a share.

Nike Inc. said its 23 percent EPS gain was due to broad-based revenue growth, gross margin expansion, selling and administrative expense leverage, a lower effective tax rate and a lower average share count.

“Fiscal 2016 is off to a great start,” said Mark Parker, president and CEO, Nike, Inc. “Our relentless pace of growth is driven by our proven strategy of putting the consumer first, obsessing innovation in everything we do and leveraging our powerful portfolio. We’re well-positioned to continue to deliver long-term growth that is both sustainable and profitable.”

First Quarter Income Statement Review

  • Revenues for Nike, Inc. increased 5 percent to $8.4 billion, up 14 percent on a currency-neutral basis.
  • Revenues for the Nike Brand were $7.9 billion, up 15 percent on a currency-neutral basis driven by growth in every geography and nearly every key category.
  • Revenues for Converse were $555 million, up 3 percent on a currency-neutral basis, mainly driven by strong growth in the U.S., partially offset by a decline in the U.K.
  • Gross margin expanded 90 basis points to 47.5 percent. The increase was primarily attributable to higher average selling prices and continued growth in the higher margin Direct to Consumer (DTC) business, partially offset by higher product input and warehousing costs.
  • Selling and administrative expense increased 4 percent to $2.6 billion. Demand creation expense was $832 million, down 7 percent, reflecting favorable comparisons against higher investment in support of the World Cup in the first quarter of fiscal 2015. Operating overhead expense increased 10 percent to $1.7 billion, reflecting continued growth in the DTC business and targeted investments in infrastructure and consumer-focused digital capabilities.
  • In other income, net was $31 million, comprised primarily of net foreign currency exchange gains. For the quarter, the company estimates the year-over-year change in foreign currency-related gains and losses included in other income, net, combined with the impact of changes in exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $151 million.
  • The effective tax rate was 18.4 percent, compared to 21.7 percent for the same period last year, primarily due to an increase in the proportion of earnings from operations outside of the U.S., which are generally subject to a lower tax rate, as well as certain non-recurring items recognized in the quarter.
  • Net income increased 23 percent to $1.2 billion while diluted earnings per share increased 23 percent to $1.34, reflecting strong revenue growth, gross margin expansion, selling and administrative expense leverage, a lower tax rate and a decrease in the weighted average diluted common shares outstanding.

August 31, 2015 Balance Sheet Review

Inventories for Nike, Inc. were $4.4 billion, up 10 percent from August 31, 2014, driven primarily by an 8 percent increase in Nike Brand wholesale unit inventories. Increases in average product cost per unit, as well as higher inventories associated with growth in DTC, were largely offset by changes in foreign currency rates.
Cash and short-term investments were $5.4 billion, $829 million higher than last year primarily as a result of growth in net income and collateral received from counterparties as a result of hedging activities more than offsetting share repurchases and higher dividends.

Share Repurchases

During the first quarter, Nike, Inc. repurchased a total of 5.5 million shares for approximately $588 million as part of the four-year, $8.0 billion program approved by the Board of Directors in September 2012. As of the end of the first quarter, a total of 86.4 million shares had been repurchased under this program for approximately $6.5 billion, at an average cost of $75.70 per share.

Futures Orders

As of the end of the quarter, worldwide futures orders for Nike Brand athletic footwear and apparel scheduled for delivery from September 2015 through January 2016 were 9 percent higher than orders reported for the same period last year, and 17 percent higher on a currency-neutral basis.