Nike Crushes Expectations With Broad-Based Growth

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Nike (NYSE: NKE) announced stellar fiscal second-quarter 2019 results on Thursday after the market closed, including stronger-than-expected thanks to the athletic footwear and sportswear giant's continued product innovation and execution of its strategic priorities.

With shares up nearly 8% in after-hours trading as of this writing, let's hit the ground running to get a better look at what drove Nike as it finished the first half.

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Nike results: The raw numbers

Metric

Fiscal Q2 2019*

Fiscal Q2 2018

Year-Over-Year Growth

Revenue

$9.374 billion

$8.554 billion

9.6%

GAAP net income (loss)

$847 million

$767 million

10.4%

GAAP earnings (loss) per diluted share

$0.52

$0.46

13%

What happened with Nike this quarter?

  • Revenue climbed 14% on a currency-neutral basis.
  • By comparison, three months ago, Nike told investors to expect significantly more modest currency-neutral growth of 9%, with reported growth potentially arriving 2 to 3 percentage points lower due to the negative impact of foreign currency exchange.
  • Nike brand revenue climbed 14% year over year at constant currency, to $8.9 billion, thanks to accelerated growth in all geographies and digital Nike direct sales strength.
  • North American Nike brand revenue grew 9% to $3.782 billion, accelerating from 6% growth last quarter.
  • Internationally, Nike's EMEA region revenue grew 8% (14% at constant currencies) to $2.313 billion, greater China jumped 26% (or 31% at constant currency) to $1.544 billion, and the Asia Pacific/Latin America business saw sales climb 2% (15% at constant currency), to $1.298 billion.
  • Converse revenue increased 4% (6% at constant currency) to $425 million.
  • Gross margin rose 80 basis points to 43.8%, thanks to higher average selling prices and Nike Direct margin expansion.
  • Nike spent $1.3 billion to repurchase 16.1 million shares during the quarter, leaving around $700 million remaining under its initial $12 billion buyback authorization commenced in late 2015. In June, the company authorized a new four-year $15 billion repurchase program to commence after the completion of its current program.

What management had to say

"NIKE's ambitious digital transformation is driving strong results and momentum in North America and in our international geographies," stated Nike chairman and CEO Mark Parker. "We're incredibly energized about 2019 -- with a full innovation pipeline; the most personal, responsive retail experiences in the industry; and a supply chain that's delivering speed at scale."

"Amidst an increasingly dynamic macro environment, what is certain is that NIKE's execution of the Consumer Direct Offense is driving consistently strong growth across our diverse, global portfolio," added CFO Andy Campion. "As we continue to invest in digital transformation, we are driving consumer-centric disruption in our industry and unlocking new opportunities for growth."

Looking forward

With the caveat that Nike will need to weather "increasing volatility and uncertainty of late on a macro level," Campion mentioned during the subsequent conference call that Nike now expects full fiscal-year 2019 currency-neutral revenue growth in the high single-digit range -- roughly in line with its previous outlook -- but this time with an upside chance it could reach the low double digits. Nike also called for full-year gross margin to expand roughly 70 basis points year over year, compared to its previous target for a 50-basis-point improvement.

In the meantime for the current fiscal third quarter, Nike expects top-line growth "squarely in the high single-digit range" on a currency-neutral basis, with reported growth arriving roughly four points lower. Third-quarter gross margin should also expand by around 70 basis points from the same year-ago period.

In the end, there was little not to like about this better-than-expected quarter from Nike, especially in light of continued macroeconomic turmoil that could have easily derailed its growth plans. Nike stock is simply responding in kind.

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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.