Nike Weathers Currency Fluctuations With Another Solid Quarter

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Nike Inc. (NYSE: NKE) announced fiscal first-quarter 2019 results on Tuesday after the market closed, detailing accelerated growth in North America and sustained international momentum.

With shares up more than 33% year to date leading into this quarterly report, shares of the athletic footwear and sportswear giant opened modestly lower on Wednesday. But let's take a closer look at how Nike kicked off the new fiscal year, as well as what investors should be watching in the coming quarters.

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Nike results: The raw numbers

Metric

Fiscal Q1 2019*

Fiscal Q1 2018

Growth (YOY)

Revenue

$9.948 billion

$9.070 billion

9.7%

GAAP net income (loss)

$1.092 billion

$950 million

14.9%

GAAP earnings (loss) per diluted share

$0.67

$0.57

17.5%

What happened with Nike this quarter?

  • For perspective, last quarter, Nike told investors to anticipate revenue growth in the high single-digit percent range.
  • NIKE Brand revenue grew 10% year over year to $9.417 billion, including growth in nearly every product category led by Sportswear.
  • Within that, North American NIKE Brand revenue climbed 6% year over year to $4.145 billion, accelerating from 3% year-over-year growth last quarter.
  • Internationally, EMEA region revenue grew 11% (9% excluding currencies) to $2.607 billion, China climbed 24% (20% excluding currencies) to $1.379 billion, and Asia Pacific/Latin America revenue climbed 7% (14% excluding currencies) to $1.27 billion.
  • Converse revenue grew 7% at constant currency to $527 million.
  • Gross margin expanded 50 basis points year over year to 44.2%.
  • Nike repurchased 17.8 million shares during the quarter for $1.4 billion, leaving roughly $1.9 billion remaining under its four-year, $12 billion program authorized in late 2015. Recall that last quarter, Nike's board authorized a new four-year, $15 billion buyback program that will commence upon completing its current authorization.

What management had to say

"NIKE's Consumer Direct Offense, combined with our deep line-up of innovation, is driving strong momentum and balanced growth across our entire business," stated Nike Chairman and CEO Mark Parker. "Our expanded digital capabilities are accelerating our complete portfolio and creating value across all dimensions as we connect with and serve consumers."

"We are delivering stronger global growth and profitability than we anticipated entering this fiscal year," added CFO Andy Campion. "While foreign exchange volatility has increased, our underlying currency-neutral momentum continues to build as we transform how NIKE operates, drives growth and creates value for our shareholders."

Looking forward

During the subsequent conference call, Campion reaffirmed Nike's previous full fiscal-year 2019 guidance, which calls for revenue growth in the high single-digit percent range -- though he also cautioned that, as reported, revenue may arrive near the lower end of that range "as operational upside will likely be somewhat offset by FX headwinds."

Nike also continues to expect full-year gross margin to expand by 50 basis points "or slightly greater" from 43.8% in fiscal 2018.

For the current fiscal second quarter, Nike anticipates its currency-neutral revenue growth will remain steady at roughly 9%, with reported growth (including currencies) potentially arriving two to three percentage points lower. Fiscal Q2 gross margin should also remain consistent with the gains Nike saw to start the fiscal year.

All told, there were no big surprises in this slightly stronger-than-expected quarter from Nike, which is likely why shares pulled back a bit today given its hefty year-to-date gains. But as the company continues its steady global expansion, I think long-term investors should be more than happy with what Nike had to say today.

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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.