Nike Profit Growth Accelerates As Brand Power Strengthens

Investor's Business Daily

Nike reported blowout first-quarter earnings late Thursday as the athletic shoe and apparel giant gained traction in North America, showing brand power plays well even in a challenging retail environment.

Earnings surged 34% to 86 cents a share, topping analyst forecasts for 78 cents. It was Nike's (NKE) fourth straight quarter of accelerating growth and the best gain in years.

Sales rose nearly 8% to $6.97 billion, in line with estimates for $6.96 billion.

The earnings beat was driven by a better-than-expected gross margin, which was up 120 basis points to 44.9%.

Futures Orders Strong

Global futures orders shot up 8%, and 10% excluding currency effects. Futures orders rose 11% in North America — 12% excluding currency effects. They shot up 25% in Central and Eastern Europe. Futures orders in greater China were up 3%.

Nike shares rose 6.5% in after-hours trading to 74.89, which would be a new all-time high. Ahead of results, Nike climbed 2% to 70.34, a record close.

"The results were strong, and what surprised me was the North America business was better than expected," said Brian Sozzi, CEO of Belus Capital Advisors. "They were very successful in pushing through price increases everywhere. That tells us if you have a brand and product like Jordan sneakers that people want, they will pay full price for it. Other consumer companies don't have that luxury.

The better-than-expected gross margin shows Nike did a good job controlling expenses, Sozzi said.

"Nike is still winning in the marketplace," he said. "Their market share remains strong.

Revenue for the Nike brand rose 7% to $6.5 billion on a currency neutral basis, with growth in every product type and every area except greater China.

China sales fell 0.5% as consumers there control spending. Nike had previously warned of weak China results in the first half of the year, with stabilization in the later half.

The Nike brand shows strong momentum, especially among young men and women, which is evidenced by pricing power despite recent price increases, wrote Cowen analyst Faye Landes in a report ahead of Nike's earnings, citing new findings from the firm's proprietary tracking survey.

Shares of sports apparel rival Under Armour (UA) rose late on Nike's results. So did athletic shoe retailers Foot Locker (FL)and Finish Line (FINL).

Finish Line reports earnings Friday.

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