Nike, Inc. Delivers As Promised to Start the New Fiscal Year

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Nike Inc. (NYSE: NKE) announced fiscal first-quarter 2018 results on Tuesday after the market closed, and shares are down around 4% in after-hours trading as of this writing. Just as the athletic footwear and apparel giant suggested would be the case three months ago, continued strong international growth this quarter was almost entirely offset by expected weakness in the North American market.

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Let's take a closer look at how Nike kicked off its new year, as well as what investors can expect from the company in the months ahead.

Nike results: The raw numbers

Metric

Fiscal Q1 2018

Fiscal Q1 2018

Year-Over-Year Growth

Revenue

$9.070 billion

$9.061 billion

0%

Net income

$950 million

$1.249 billion

(23.9%)

Earnings per share (diluted)

$0.57

$0.73

(21.9%)

What happened with Nike this quarter?

  • These results are roughly in line with Nike's guidance provided in June, which called for revenue to be flat on both a reported and constant-currency basis. Recall that Nike also warned that year-over-year comparisons would be difficult given the timing of the Olympics in 2016, the European Football Championship, foreign exchange, and Nike's strategic exit from the golf-equipment business.
  • For perspective -- and though we don't usually pay close attention to Wall Street's demands -- consensus estimates predicted lower earnings of $0.48 per share on slightly higher revenue of $9.09 billion.
  • As part of its Consumer Direct Offense initiative, Nike is now reporting Nike Brand sales in four primary geographic segments, down from six previously: North America, EMEA (Europe, Middle East, and Africa), Greater China, and APLA (Asia-Pacific and Latin America). 
  • Nike Brand revenue grew 2% on a constant-currency basis to $8.6 billion, driven primarily by growth in sportswear. On a geographic basis, North America Nike Brand sales fell 3% to $3.924 billion, EMEA sales climbed 5% at constant currency to $2.344 billion, Greater China sales rose 12% at constant currency to $1.108 billion, and APLA sales grew 6% to $1.189 billion.
  • Converse revenue declined 16% to $483 million, primarily because of weakness in North America.
  • Gross margin fell 180 basis points year over year, to 43.7%, primarily because of unfavorable foreign currency exchange rates. Margins were also pressured to a lesser extent by a higher mix of off-price sales.
  • Nike repurchased 15.3 million shares during the quarter for $849 million, leaving roughly $6.7 billion remaining under Nike's four-year, $12 billion authorization approved in November 2015.
  • The quarter ended with $5.5 billion in cash, equivalents, and short-term investments, up $732 million from the same year-ago period.

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What management had to say

"This quarter, we captured near-term opportunities through our new Consumer Direct Offense," stated Nike Chairman and CEO Mark Parker. "Looking ahead to the rest of fiscal 2018, we will ignite Nike's next horizon of global growth through the strength of our brand, the power of our innovative products, and the most personal, digitally connected experiences in our industry."

Looking forward

For the current fiscal second quarter, Nike expects reported revenue growth to be in the low-single-digit range, as short-term headwinds in the North American retail market should be more than offset by international growth. Nike also continues to expect full fiscal-year revenue growth in the mid-single-digit range. 

"We have operated in dynamic circumstances before, and in every instance, being on the offense and consumer-focused has served us well," stated Nike CFO Andy Campion during the subsequent conference call. "Our organization is now realigned against our new Consumer Direct Offense, and we are all energized by the opportunity to ignite yet another horizon of strong sustainable growth at Nike."

In the end, there were no big surprises in Nike's latest results. Revenue was roughly in line with the company's expectations as laid out last quarter, led by international growth. Earnings arrived well ahead of consensus estimates, despite unfavorable foreign exchange and what leading footwear retailers have described as a "very promotional" environment for athletic footwear. And Nike's outlook for the remainder of the year remains effectively unchanged. As such, while the initial share-price decline seems to indicate otherwise, I think Nike investors should be pleased with their company's position today.

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