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Breaking Down Nike's (NKE) Impressive Earnings Results

Benjamin Rains

Nike NKE stock soared over 8% Friday after the sportswear giant posted better-than-expected quarterly financial results Thursday. So, let’s take a look at where Nike performed the best and dive into some of what we learned from the company’s earnings call.

Quick Q2 Overview

Right off the bat, Nike’s fiscal second quarter 2019 revenues jumped 10% from the year-ago period to reach $9.37 billion. This matched the company’s growth last quarter and topped our Zacks Consensus Estimate that called for a 7.1% expansion to reach $9.16 billion. Meanwhile, on the bottom end of the income statement, the sportswear giant’s adjusted quarterly earnings popped 13% to touch $0.52 per share, which blew past our estimate that called for a 2% dip to hit $0.45 a share.

Shares of Nike were up 7% to $72.31 a share through mid-afternoon trading Friday. Clearly, many investors were pleased with Nike’s top and bottom-line expansion. But we need to dig a little deeper to see why Nike was able to beat quarterly expectations.

Details

Nike’s North American revenues surged 9% to hit $3.78 billion. This also came in above our $3.68 billion NFM estimate and marked the much-needed continuation of sales growth in its largest market. We should note that Nike was able to build on a disappointing Q2 of fiscal 2018 when its North American sales fell 5%.

Nike has been able to return to the growth investors have come to expect through a massive direct-to-consumer push, driven by Nike Digital. The company has introduced multiple e-commerce-focused apps and blows away some of its biggest competitors, Adidas ADDYY and Under Armour UAA, in terms of reach across social media from Instagram FB to Twitter TWTR.

Plus, the company has expanded its athleisure business in order to fight off challengers like Lululemon LULU and Gap’s GPS Athleta. And the firm has remained a dominant force in sportswear and streetwear, while it maintains its position as a global leader in basketball and soccer (also read: The Sports Retailers Disrupting the Industry Heading into 2019).

Overall, Nike’s digital revenues surged 41%, with mobile now accounting for “well over” 50% of its digital commerce revenue. Nike CFO Andy Campion said that Nike expects its digital division will comprise 30% of the firm’s total business by 2023, compared to roughly 15% at the moment.

The company was also able to return to growth in its Jordan division. Plus, Nike’s biggest category, Sportswear, saw its apparel segment surge over 20%. Nike also noted that it expects big things from its Converse brand going forward, including a Basketball push and a new digital platform.

Moving on, Nike's sales in Greater China soared 26% to reach $1.54 billion, which topped our $1.42 billion estimate. This also marked larger growth than last quarter’s 20% expansion in what is a key market for Nike. The firm’s Singles' Day—popularized by Alibaba BABA—sales skyrocketed 40%. Maybe more impressively, Q2 marked the 18th consecutive quarter of double-digit revenue growth in China.

Sales also climbed 8% in Europe, Middle East, and Africa to $2.31 billion. Nike’s Asia Pacific & Latin America division climbed 2% to $1.3 billion.

Bottom Line

Nike’s digital push has proved successful. But the company hasn’t given up on traditional retail. In fact, Nike has rolled out new store concepts around the world. And CEO Mark Parker said on the company’s earnings call that Nike is “making great strides with strategic partners like JD Sports, Foot Locker FL, Nordstrom JWN, and Dick’s Sporting Goods DKS, elevated experiences are driving outsized growth in the wholesale channel.”

Through its dominance of sportswear and big-time professional sports, which includes the NBA, NFL, and European soccer—along with Adidas—Nike seems poised to remain a retail giant for years to come. Looking ahead, our current Zacks Consensus Estimate calls for Nike’s full-year revenues to climb 7.4% to reach $39.07 billion.

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