Nike's (NYSE:NKE) Q1: Beats On Revenue
Athletic apparel brand Nike (NYSE:NKE) reported Q1 CY2024 results exceeding Wall Street analysts' expectations , with revenue flat year on year at $12.43 billion. It made a non-GAAP profit of $0.98 per share, improving from its profit of $0.79 per share in the same quarter last year.
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Nike (NKE) Q1 CY2024 Highlights:
Revenue: $12.43 billion vs analyst estimates of $12.3 billion (1.1% beat)
EPS (non-GAAP): $0.98 vs analyst estimates of $0.75 (29.9% beat)
Gross Margin (GAAP): 44.8%, up from 43.3% in the same quarter last year
Market Capitalization: $151.9 billion
Originally selling Japanese Onitsuka Tiger sneakers as Blue Ribbon Sports, Nike (NYSE:NKE) is a global titan in athletic footwear, apparel, equipment, and accessories.
Footwear
Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales Growth
A company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. Nike's annualized revenue growth rate of 5.9% over the last five years was weak for a consumer discretionary business.
Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Nike's annualized revenue growth of 5% over the last two years aligns with its five-year revenue growth, suggesting the company's demand has been stable.
Nike also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 8.5% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see that foreign exchange rates have been a headwind for Nike.
This quarter, Nike's $12.43 billion of revenue was flat year on year but beat Wall Street's estimates by 1.1%. Looking ahead, Wall Street expects sales to grow 4.3% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Nike has done a decent job managing its expenses over the last eight quarters. The company has produced an average operating margin of 11.9%, higher than the broader consumer discretionary sector.
In Q1, Nike generated an operating profit margin of 10.7%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.
Over the next 12 months, Wall Street expects Nike to become more profitable. Analysts are expecting the company’s LTM operating margin of 11.6% to rise to 13.4%.
Key Takeaways from Nike's Q1 Results
We were impressed by how significantly Nike blew past analysts' EPS expectations this quarter. We were also happy its revenue and gross margin narrowly outperformed Wall Street's estimates, driven by strong sales of its Nike-branded goods (this excludes Converse, whose revenue dropped 20% on a constant currency basis). Specifically, Nike-branded equipment sales were up 21% year-on-year. Overall, we think this was a good quarter that should please shareholders. The stock is up 3% after reporting and currently trades at $103.78 per share.
Nike may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
