U.S. Markets close in 1 hr 46 mins

Nike says ad campaign featuring Colin Kaepernick drove 'record engagement'

Nike (NKE) reported quarterly earnings that beat average analyst estimates as company executives asserted the company is on track for “strong, sustainable growth” in its key North American market.

The sports apparel powerhouse posted adjusted earnings of 67 cents per share on revenues of $9.95 billion, surpassing estimates of adjusted earnings of 63 cents per share on $9.94 billion in revenue, according to estimates compiled by Bloomberg.

The stock dipped following the release, falling 4% to $81.36 per share at 6:04 p.m. in New York. Some are attributing share price declines to the Beaverton, Oregon-based company’s disappointing gross profit margins. The company posted first quarter gross margins of 44.2% against average analyst estimates of 44.3%. It’s worth noting that Nike has been a top performer in the market with its stock up more than 35% this year at the close Tuesday, which compares to a more modest 8% gain in the Dow (^DJI).

Record engagement following new campaign

Nike made headlines earlier this month after featuring former San Francisco 49ers quarterback Colin Kaepernick as part of a new “Just Do It” advertising campaign, which launched at the beginning of the quarter. Kaepernick began kneeling during the national anthem before football games in 2016 to protest racial injustice and police brutality, sparking criticism from individuals including President Donald Trump. Other critics began boycotting Nike products, with some consumers posting videos of themselves burning the apparel on social media.

“We feel actually very good and very proud of the work that we’re doing with Just Do It,” Nike CEO Mark Parker said on a call with analysts on Tuesday.

Nike came out largely unscathed from the ordeal – as of last Friday, its market value surged by nearly $6 billion since unveiling the Kaepernick campaign, demonstrating the company’s ability to maintain its appeal among a young user base despite the controversy.

“It’s driving a real uptake, I think in traffic and engagement, both socially as well as commercially,” Parker said. “We’ve seen record engagement with the brand as part of the campaign.”

People walk by a Nike advertisement featuring Colin Kaepernick on display, Thursday, Sept. 6, 2018 in New York.  (AP Photo/Mark Lennihan)

“Nike has arguably, in our view, one of the strongest marketing platforms of U.S. based companies,” Robert Drbul, a Guggenheim Partners analyst, wrote in a note prior to the release of earnings. Drbul added that Nike is “top of class in connecting with consumers and the ‘Just Do It’ slogan is part of global culture.”

Revenue from Greater China, considered one of the company’s major sales-driving regions, also missed narrowly, coming in at $1.38 billion versus estimates of $1.40 billion. The company beat sales estimates in the Europe/Middle East/Africa region.

“We are delivering stronger global growth and profitability than we anticipated entering this fiscal year,” Andy Campion, executive vice president and CFO of Nike, said in a statement. “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.”

Sales momentum has grown from scaling new product launches, rolling out digital initiatives like Nike Plus and gaining market share in North America, Cristina Fernández of Telsey Advisory Group wrote in a note before the release of earnings. Nike’s home market sales rose to $4.15 billion, a six percent increase from the year-ago quarter.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

More from Emily:

Weed stock Tilray is sending investors on an incredible ride

Tilray shares jump as company says it’s exporting cannabis to sick children in Australia

A trade war won’t rattle the ‘white hot’ US economy

White House economist: Tariffs are hurting China much more than the US