Nike Trips Despite Another Strong Quarter

Nike (NYSE: NKE) announced fiscal third-quarter 2019 results on Thursday after the market closed. The athletic footwear and sportswear juggernaut highlighted slightly better-than-expected revenue growth yet again, driven by the sustained global success of its “consumer direct offense” business strategy.

Still, Nike’s near-term outlook left the market wanting more. With the stock down around 6% in today’s afternoon trading, let’s take a closer look at what it had to say.

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Nike results: The raw numbers

Metric

Fiscal Q3 2019*

Fiscal Q3 2018

Year-Over-Year Growth

Revenue

$9.61 billion

$8.98 billion

7%

GAAP net income (loss)

$1.101 billion

($921 million)

N/A

GAAP earnings (loss) per diluted share

$0.68

($0.57)

N/A

What happened with Nike this quarter?

  • Recall that Nike’s GAAP earnings in last year’s fiscal Q3 were impacted by a $1.25-per-share provisional tax expense related to the 2017 Tax Cuts and Jobs Act. Adjusted for that item, earnings per share were flat on a year-over-year basis.
  • Revenue grew 11% on a constant-currency basis — above guidance provided in December for constant-currency revenue growth “squarely in the high single-digit range,” and for reported revenue growth roughly four percentage points lower.
  • Nike brand revenue grew 12% at constant currency to $9.1 billion, with broad growth across both wholesale and Nike Direct channels. Within that total: North American Nike Brand revenue grew 7% to $3.81 billion. Internationally, Nike brand revenue grew 6% in the EMEA region (12% at constant currencies) to $2.435 billion, grew 19% in Greater China (24% at constant currencies) to $1.588 billion, and declined 8% in the Asia Pacific/Latin America regions (but rose 3% at constant currencies) to $1.307 billion.
  • North American Nike Brand revenue grew 7% to $3.81 billion.
  • Internationally, Nike brand revenue grew 6% in the EMEA region (12% at constant currencies) to $2.435 billion, grew 19% in Greater China (24% at constant currencies) to $1.588 billion, and declined 8% in the Asia Pacific/Latin America regions (but rose 3% at constant currencies) to $1.307 billion.
  • Converse revenue declined 2% at constant currencies to $463 million, as growth from Asia and digital sales was more than offset by declines in Europe and the U.S.
  • Gross margin expanded 130 basis points to 45.1%, helped by higher average selling prices and growth in Nike Direct sales.
  • Nike repurchased 9.8 million shares for $754 million this quarter, completing its four-year $12 billion share repurchase plan authorized in November 2015, then commenced its new four-year, $15 billion repurchase program authorized last June.

What management had to say

“In Q3, our team once again drove strong, healthy growth across Nike’s complete portfolio,” stated Nike Chairman and CEO Mark Parker. “Our business momentum is being accelerated by our ability to scale innovation at a faster pace and expand new digital consumer experiences around the world.”

“The Consumer Direct Offense is delivering broad-based growth across all four of our geographies, led by continued momentum in China,” elaborated Nike CFO Andy Campion. “We will continue investing in key capabilities to drive Nike’s digital transformation and fuel strong profitable growth into next fiscal year and beyond.”

Looking forward

During the subsequent conference call, Campion told investors to expect fiscal fourth-quarter 2019 constant-currency revenue growth “squarely in the high single-digit range” once again, but with around six points of currency headwinds bringing reported revenue growth to the low single-digit range. For perspective, and though we don’t usually pay close attention to Wall Street’s demands, most analysts were modeling reported fiscal Q4 revenue growth of around 6.1%.

Finally, while noting they’re still in the “early stages of [their] annual planning process,” Nike expects high single-digit revenue growth and continued gross margin expansion for the full fiscal year 2020 — or essentially in line with Wall Street’s expectations per the long-term goals the company provided during its investor day presentation in October 2017.

All things considered, this was another solid if slightly stronger-than-expected report from Nike with which the company continued to move forward its strategic growth initiatives. But given its slight top-line guidance shortfall relative to expectations in the fiscal fourth quarter, and with shares up nearly 40% in the year preceding this report, it’s no surprise to see the stock enduring a modest correction today in response.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.

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