Athletic footwear, apparel, and equipment giant NIKE (NKE – Free 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).