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Breaking Down Nike's (NKE) Q3 Earnings: North America, China & More

Benjamin Rains

Nike NKE posted better-than-expected Q3 fiscal 2019 earnings and revenue after the closing bell Thursday. Shares of NKE had surged 15% this year heading into the release and popped 1.6% during regular trading hours, before dipping after-hours. So, let’s break down the sportswear giant’s footwear sales, as well as North American and Chinese revenue.

Quick Overview

Nike posted adjusted quarterly earnings of $0.68 a share, which topped our $0.63 per share Zacks Consensus Estimate by 8%. Investors should note that Nike’s management team is excellent and the firm almost always tops quarterly earnings projections. Last quarter, Nike beat our earnings estimate by over 15%.

Along with its solid earnings beat, Nike’s gross margin popped by 1.3% to reach 45.1%. The company attributed its margin expansion to higher average selling prices, favorable changes in foreign currency exchange rates, along with growth in its digital-focused Nike Direct business. Meanwhile, Nike’s selling and administrative expenses jumped 12% to $3.1 billion, driven in part by a 17% increase in overhead.

On the other end of the income statement, Nike’s quarterly revenue climbed roughly 7% to hit $9.611 billion and surpass our Zacks Consensus Estimate that called for $9.54 billion. This, however, marked a bit of a slowdown from Q2’s 10% revenue growth.

 

 

 

Details

Nike stock was able to regain momentum over the last year on the back of a return to growth in its key North American market, which represents around 40% of total company sales, after a stretch of declines. With that said, NKE’s sales in its home market popped 7% to $3.810 billion. This fell short of our $3.87 billion NFM estimate and marked a slowdown from Q2’s 9% North American sales growth.

Despite the small miss, Nike proved its strength in the vital region as it fights off rival Adidas ADDYY and blows away Under Armour UAA. Meanwhile, Wall Street also likely paid close attention to the sportswear firm’s sales in Greater China.

Sales in China surged 19% to hit $1.588 billion, which came in well above our $1.54 billion estimate and represented the 19th consecutive quarter of double-digit revenue growth in the world’s second-largest economy. We should point out that Nike’s performance fell short of Q2’s 26% Chinese expansion. Still, Nike was able to post solid growth, while the country’s broader economic downturn really hurt the likes of Apple AAPL, Alibaba BABA, and many others.

On top of continued North American and Chinese growth, the company’s footwear business jumped. The company’s Nike brand footwear sales popped 9% from $5.605 billion in the year-ago period to reach $6.122 billion. More specifically, Footwear sales, which account for roughly 60% of total Nike sales, jumped 9% in North America—to outpace the region’s 7% total growth—and 19% in China.

Bottom Line

In the end, Nike’s direct-to-consumer push is likely to remain a key catalyst for the stock going forward. Meanwhile, the company remains focused on strategic wholesale partnerships with the likes of Foot Locker FL, Nordstrom JWN, and Dick’s Sporting Goods DKS. Nike stock rested down nearly 4% in after-hours trading Thursday.

Make sure to head back to Zacks for a full breakdown of Nike’s conference call, in order to evaluate the sportswear powerhouse’s digital performance in the Amazon AMZN age and check out any athleisure updates as NKE fights off competition from Lululemon LULU and others.

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