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Athletic footwear, apparel, and equipment giant NIKE (NKEFree NIKE Stock Report) easily topped fiscal first-quarter (ended August 31st) estimates in spite of the tailwinds of the World Cup soccer tournament a year earlier and greater headwinds from foreign currency translations in the most-recent term. Share net came in at $1.34, compared with $1.09 a year earlier and our estimate of $1.15. Sales increased 5.4% (a 14% gain in constant currency), year to year, when we were looking for a 2.1% uptick. In North America, sales rose a solid 8%. Moreover, NIKE breezed through international markets that have been giving other global companies troubles of late. Though reported sales declined 4% in Western Europe, they were up 14% in local currencies. Sales in the Greater China region jumped an amazing 30%, while revenues in NIKE's Emerging Markets segment increased 19% (reported sales increased an impressive 3%, given the poor operating conditions.) Worldwide future orders for delivery over the next six months, excluding currency changes, were up an outstanding 17%. These are heavily weighted toward the January period, so we are now expecting a fiscal second-quarter sales gain in line with the first period.

Despite the stronger dollar, the August-quarter gross margin improved 90 basis points, driven by better product pricing and growth in the higher-margined direct-to-consumer business. Gross margin expansion is expected to narrow to 25 basis points in the November period due to some excess inventory and the ramp-up of a distribution center in North America. Marketing expenses declined 7%, year over year, due to spending related to the World Cup last year. Overhead costs climbed 10%, reflecting continued investments in infrastructure, stores, and digital capabilities. These investments are expected to remain elevated over the balance of fiscal 2016.

Other income of $31 million, versus an expense of $3 million a year earlier, largely was the result of currency hedging gains. However, this gain was offset by the currency impact on operating income, and reduced pretax income by $151 million. The effective tax rate was an unusually low 18.4%, thanks to the geographic sales mix and some one-time items. The tax rate should revert to a more normal 24% over the next three quarters.

All in all, we're raising our fiscal 2016 share-earnings forecast by $0.15, to $4.25. This accounts for the first-quarter beat, but we are lowering our November-period estimate a tad and keeping our second-half numbers essentially unchanged for the reasons mentioned above. Still, investors liked what they saw in fiscal first-quarter results, and this high-quality stock rose sharply to a 52-week high, in response.

About The Company:NIKE, Inc. designs, develops, and markets footwear, apparel, equipment, accessories, and services. It sells products to retail accounts, through NIKE-owned retail stores and the Internet, and through a mix of independent distributors and licensees in approximately 190 countries. It operates over 320 domestic and roughly 535 international locations (including factory stores).

 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.