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NIKE Surges on Q1 Earnings Beat & Future Order Growth

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Athletic apparel, footwear and accessories retailer, NIKE Inc.NKE started fiscal 2016 on a high note as the company continues to woo its customers with innovative products in the first quarter. Fueled by the sturdy quarterly performance and growth in global future orders, the company's shares rose 8.3% in yesterday's after-hours trading session.

The company's first-quarter earnings per share of $1.34 surged nearly 23% year over year and surpassed the Zacks Consensus Estimate of $1.19. The bottom-line growth was driven by an impressive top line, gross margin improvement, lower tax rate, reduced share count and selling, general and administrative (SG&A) expenses leverage.

Nike Inc. - Earnings Surprise | FindTheBest

Delving Deeper

Net sales of this sportswear retailer advanced 5.4% to $8,414 million in the quarter and beat the Zacks Consensus Estimate of $8,215.9 million. On a currency neutral basis, sales rose 14%.

Revenues of the company's NIKE Brand increased 15% on a currency neutral basis to $7.9 billion. The segment registered growth across all regions and in about every major product categories.

Moreover, NIKE Brand's Direct-to-Consumer (DTC) revenues ascended 21% in the quarter, backed by significantly higher nike.com revenues, comparable-store sales growth and addition of new stores.

Further, revenues at the company's Converse brand rose 3% to $555 million on a currency neutral basis. The improvement was driven by strong growth in the U.S., partly offset by a fall in certain European countries, primarily the UK.

Nike's global future orders, slated for delivery from Sep 2015 through Jan 2016, climbed 9% year over year. On a currency neutral basis, future orders increased 17%, reflecting rising demand for the company's products.

Gross profit improved about 7.4% to $3,995 million with gross margin increasing 90 basis points (bps) to 47.5%. The rise in gross margin was aided by increased average selling prices and persistent growth in higher margin DTC business, partly offset by greater product input and warehousing expenses.

SG&A expenses escalated about 4% to $2,577 million on account of higher operating overhead costs, offset by decline in demand creation expenses.

Demand creation expense declined 7.2% as costs related to the Soccer World Cup last year were absent this year. On the other hand, operating overhead costs increased 10.2% on account of persistent expansion of DTC business and investments made toward enhancing digital capacities and operational infrastructure.

Balance Sheet

Nike ended fiscal 2015 with cash and short-term investments of $5,408 million, compared with $4,579 million a year ago. Inventories grew about 9.5% to $4,414 million.

Nike's long-term debt (excluding current maturities) stood at $1,079 million, compared with $1,195 million at the end of first-quarter fiscal 2015. Shareholders' equity was $12,894 million as of Aug 31, 2015, as against $11,105 million as of Aug 31, 2014.

Share Repurchase

During the first quarter, Nike bought back 5.5 million shares for $588 million. This buyback was part of the four-year authorization worth $8 billion, approved by the company's board in Sep 2012. At the end of the first quarter, the company bought back 86.4 million shares under the program for nearly $6.5 billion or $75.70 per share.

Conclusion & Outlook

Nike's solid quarterly performance reflects its focus on adopting innovations to keep up with customer demand. In spite of foreign currency headwinds, the company's results remain impressive, backed by its constant focus on exploiting growth opportunities along with efficient risk management. Going forward, Nike plans to follow these standards in order to enhance shareholder value in the long run.

Management remains optimistic about the rest of fiscal 2016 as it expects the strong momentum witnessed in first quarter to continue. Nike continues to anticipate revenue growth in the mid-single-digit range for fiscal 2016, while gross margin is expected to expand about 50 bps.

The company estimates SG&A expenses for the second quarter and fiscal 2016 to grow at a high single-digit rate. On the other hand, the company expects effective tax rate for fiscal 2016 to be nearly 22%.

For second-quarter fiscal 2016, the company anticipates revenue to grow in the mid-single-digit range and gross margin to improve 25 bps based on the company's efforts to clear excess inventory in North America and keep the in line channel fresh.

Zacks Rank

Nike currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the apparel-shoe industry include Skechers USA Inc. SKX , Xtep International Holdings Limited XTEPY and Sequential Brands Group, Inc. SQBG . While Skechers and Xtep International carry a Zacks Rank #1 (Strong Buy), Sequential Brands holds a Zacks Rank #2 (Buy).

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NIKE INC-B (NKE): Free Stock Analysis Report

SKECHERS USA-A (SKX): Free Stock Analysis Report

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XTEP INTL HLDGS (XTEPY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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