Nike, Inc. Outruns Earnings Expectations -- Again

In what's now becoming old hat, Nike on Thursday announced yet another analyst-trouncing quarterly performance. For its fiscal 2015 second quarter, Nike grew revenue 15% year over year, to $7.4 billion.

Diluted earnings per share climbed an even more impressive 25%, to $0.74, helped by a combination of continued gross margin expansion and Nike's decision to repurchase another 5.1 million shares during the quarter for roughly $425 million. Analysts, on average, were only expecting earnings of $0.70 per share on revenue of $7.15 billion.

"The power of our portfolio continues to unlock growth, as we keep a laser focus on our biggest opportunities," said Nike CEO Mark Parker in the company press release. "The breadth and depth of that portfolio has helped us consistently deliver strong results -- quarter after quarter, year after year."

Broad-based growthDigging deeper, we see Nike brand revenue climbed 17% on a currency-neutral basis. And similar to last quarter, that came amid growth in every product type and category, except golf.

Nike also increased sales in every geography, including sustained results in its three largest regions: 16% in North America and, excluding currencies, 24% in Western Europe, and 21% in Greater China. China's results are particularly encouraging given the ongoing market "reset" Nike is working through to address previously sluggish growth in the region.

Meanwhile, revenue for Converse jumped a currency-neutral 24%, to $434 million, aided by growth in direct distribution and market conversions in Europe and Asia. That's also a sequential acceleration for Converse over last quarter's 16% year-over-year growth. I can't help but wonder, then, whether Nike's recent move to crack down on Chuck Taylor lookalikes is bearing fruit.

Next, as I already mentioned above, gross margin continued to rise, this time by 120 basis points, to 45.1%. This is a testament to Nike's ability to charge higher-than-average prices given both its strong brands and product innovation, as well as the benefit ofcontinued growth in its higher-margin direct-to-consumer (DTC) business.

In addition, selling and administrative expenses climbed around 17%, to $2.4 billion, including an 11% jump in "demand creation" expenses, to $766 million, in support of planned brand and product initiatives. For reference, that's in line with the "low double-digit rate" increase in demand creation guided by management during last quarter's conference call.

Why the drop?Why, then, is Nike stock down Friday morning? Look no further than worldwide futures orders from December 2014 through April 2015, which Nike says increased just 7% compared to the year-ago period. Excluding currency changes, those orders would have risen 11%.

To Nike's credit, however, the latter figure is technically in line with what Wall Street was modeling on a currency-exclusive basis;perhaps investors were expecting more given Nike's streak of outperformance. In any case, the fact remains that these foreign-exchange headwinds will likely put pressure on Nike's near-term results going forward, and our fickle stock market doesn't appreciate it.

For long-term investors, this shouldn't be taken as a sign of a degrading business for Nike. Rather, as I suggested following Nike's similar fiscal third-quarter 2014 results back in March, it's simply one of the challenges associated with being a global business operating at Nike's massive scale. At the time, Nike CFO Don Blair even warned, "This year's devaluation of developing market currencies will be a significant drag on next year's reported revenue, gross margin and profit growth."

Nike's subsequent outperformance has been so pronounced that the market had been willing to give it a pass since then, with shares having risen around 24% year-to-date going into Thursday's close. In the end, though, currency headwinds notwithstanding, I'm still convinced the latests results show Nike's core business has never been stronger.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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