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NIKE (NKE) Up on Q2 Earnings Beat, Future Orders Still Soft
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NIKE Inc. (NKE - Free Report) remains a star performer that it has always been as it maintained its positive earnings surprise trend for the eighteenth straight quarter in second-quarter fiscal 2017. Additionally, its sales were ahead of estimates for the second consecutive quarter.
NIKE’s shares climbed as much as 5% initially in the after-hours trading session following the solid fiscal second-quarter results on Dec 20. However, investors could not ignore the soft future orders despite the company’s efforts to explain that this metric no longer holds importance in gauging the company’s performance. Consequently, the company’s shares price reflected this as it closed trade gaining only 1.9% in the after-hours session.
Last quarter, Nike revealed that it will discontinue reporting future orders figure in its earnings release citing the growth in eCommerce and the non-inclusion of sales of its Converse brand, NIKE Factory Stores and shorter lead-time businesses, as the primary reasons behind making this metric less relevant. While currency-neutral global future orders for the NIKE Brand grew 2% backed by a 1% increases each in units sold and average selling price, the same remained flat on a reported basis. However, future orders for the North American segment declined 4%.
Overall, shares of NIKE have declined about 17.1% year to date, significantly underperforming the Zacks categorized Consumer Discretionary sector’s growth of nearly 7% in the same period. This underperformance can be attributed to the company’s dismal future orders in the recent quarters, which has weighed on investor sentiments.
Earnings & Revenues
This athletic apparel, footwear and accessories retailer’s second-quarter earnings per share of 50 cents rose nearly 11% year over year, substantially beating the Zacks Consensus Estimate of 43 cents. Earnings were fueled by strong sales, selling & administrative expense leverage and a 3% decline in average share count, somewhat offset by a drop in gross margin.
Revenues of the swoosh brand owner advanced 6% to $8,180 million in the reported quarter and exceeded the Zacks Consensus Estimate of $8,082 million. Further, sales grew 8% on a currency neutral basis. The solid top-line growth was backed by superb global demand for the NIKE Brand portfolio, particularly in the U.S. and China. Additionally, results benefited from strong eCommerce growth and a revival in the basketball shoes category.
Revenues of the company’s NIKE Brand surged 8% on a currency neutral basis to $7,724 million. The segment gained from a double-digit increase in Western Europe, Greater China and Emerging Markets, along with solid growth across Sportswear and Running categories.
Moreover, the NIKE brand’s Direct-to-Consumer (“DTC”) revenues improved 25% in the quarter mainly on the back of robust online sales growth, 11% comparable store sales growth and expansion of new stores.
Additionally, revenues at the company’s Converse brand rose 5% on a currency neutral basis to $416 million, chiefly driven by North American growth.
Costs & Margins
Gross profit improved about 3% to $3,616 million, while the gross margin shriveled 140 basis points (bps) to 44.2%. The decline in gross margin was attributable to higher product costs, foreign currency headwinds and increased off-price sales mix, which neutralized the gains of higher average selling prices.
Selling and administrative expense fell 2% to $2,505 million on account of lower operating overhead costs and flat demand creation expenses. Operating overheads dropped 3% in the quarter as productivity gains more than mitigated the expenses related to investments in the DTC business.
Balance Sheet & Shareholder-Friendly Moves
NIKE ended the quarter with cash and short-term investments of $5,943 million, long-term debt (excluding current maturities) of $3,473 million and shareholders’ equity of $12,323 million. Inventories as of Nov 30, 2016, grew nearly 9% to $5,033 million.
During the second quarter, NIKE bought back 17 million shares for $900 million under its four-year $12 billion program that was approved in Nov 2015. As of quarter end, the company’s total repurchases under the program amounted to 56 million shares for roughly $3.1 billion.
Looking Forward
Though NIKE is facing various hurdles, the company remains confident of driving sustainable and profitable capital efficient growth over the long term. Further, with the rebound in the basketball category the company remains well positioned to compete with bigwigs like Adidas AG (ADDYY - Free Report) and Under Armour Inc. (UAA - Free Report) .
Management reiterated its fiscal 2017 revenue projections, and anticipates the same to grow at a high single-digit rate. On a currency neutral basis, it anticipates revenues to increase in a high single-digit to low double-digit range. The company’s revenue guidance reflects continued impact from currency headwinds, which is likely to persist and hurt second-half revenue forecasts. SG&A expenses for fiscal 2017 are now anticipated to grow in the low single to mid single-digits range.
For third-quarter fiscal 2017, the company expects revenues to grow in the mid single-digit range. Gross margin is projected to fall by nearly 100 to 125 bps in the quarter, mainly due to adverse currency movements. Further, SG&A expenses for the third quarter are estimated to grow at a mid single to high single-digit rate.
NIKE currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same industry is Francesca's Holdings Corporation , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
With a long-term EPS growth rate of 13.8%, Francesca's Holdings has outperformed earnings estimates consistently in the last five quarters, with an average four-quarter beat of nearly 26.6%. Further, estimates for the current fiscal have witnessed an uptrend in the last 30 days.
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NIKE (NKE) Up on Q2 Earnings Beat, Future Orders Still Soft
NIKE Inc. (NKE - Free Report) remains a star performer that it has always been as it maintained its positive earnings surprise trend for the eighteenth straight quarter in second-quarter fiscal 2017. Additionally, its sales were ahead of estimates for the second consecutive quarter.
NIKE’s shares climbed as much as 5% initially in the after-hours trading session following the solid fiscal second-quarter results on Dec 20. However, investors could not ignore the soft future orders despite the company’s efforts to explain that this metric no longer holds importance in gauging the company’s performance. Consequently, the company’s shares price reflected this as it closed trade gaining only 1.9% in the after-hours session.
Last quarter, Nike revealed that it will discontinue reporting future orders figure in its earnings release citing the growth in eCommerce and the non-inclusion of sales of its Converse brand, NIKE Factory Stores and shorter lead-time businesses, as the primary reasons behind making this metric less relevant. While currency-neutral global future orders for the NIKE Brand grew 2% backed by a 1% increases each in units sold and average selling price, the same remained flat on a reported basis. However, future orders for the North American segment declined 4%.
Overall, shares of NIKE have declined about 17.1% year to date, significantly underperforming the Zacks categorized Consumer Discretionary sector’s growth of nearly 7% in the same period. This underperformance can be attributed to the company’s dismal future orders in the recent quarters, which has weighed on investor sentiments.
Earnings & Revenues
This athletic apparel, footwear and accessories retailer’s second-quarter earnings per share of 50 cents rose nearly 11% year over year, substantially beating the Zacks Consensus Estimate of 43 cents. Earnings were fueled by strong sales, selling & administrative expense leverage and a 3% decline in average share count, somewhat offset by a drop in gross margin.
Revenues of the swoosh brand owner advanced 6% to $8,180 million in the reported quarter and exceeded the Zacks Consensus Estimate of $8,082 million. Further, sales grew 8% on a currency neutral basis. The solid top-line growth was backed by superb global demand for the NIKE Brand portfolio, particularly in the U.S. and China. Additionally, results benefited from strong eCommerce growth and a revival in the basketball shoes category.
Revenues of the company’s NIKE Brand surged 8% on a currency neutral basis to $7,724 million. The segment gained from a double-digit increase in Western Europe, Greater China and Emerging Markets, along with solid growth across Sportswear and Running categories.
Moreover, the NIKE brand’s Direct-to-Consumer (“DTC”) revenues improved 25% in the quarter mainly on the back of robust online sales growth, 11% comparable store sales growth and expansion of new stores.
Additionally, revenues at the company’s Converse brand rose 5% on a currency neutral basis to $416 million, chiefly driven by North American growth.
Costs & Margins
Gross profit improved about 3% to $3,616 million, while the gross margin shriveled 140 basis points (bps) to 44.2%. The decline in gross margin was attributable to higher product costs, foreign currency headwinds and increased off-price sales mix, which neutralized the gains of higher average selling prices.
Selling and administrative expense fell 2% to $2,505 million on account of lower operating overhead costs and flat demand creation expenses. Operating overheads dropped 3% in the quarter as productivity gains more than mitigated the expenses related to investments in the DTC business.
Balance Sheet & Shareholder-Friendly Moves
NIKE ended the quarter with cash and short-term investments of $5,943 million, long-term debt (excluding current maturities) of $3,473 million and shareholders’ equity of $12,323 million. Inventories as of Nov 30, 2016, grew nearly 9% to $5,033 million.
During the second quarter, NIKE bought back 17 million shares for $900 million under its four-year $12 billion program that was approved in Nov 2015. As of quarter end, the company’s total repurchases under the program amounted to 56 million shares for roughly $3.1 billion.
Looking Forward
Though NIKE is facing various hurdles, the company remains confident of driving sustainable and profitable capital efficient growth over the long term. Further, with the rebound in the basketball category the company remains well positioned to compete with bigwigs like Adidas AG (ADDYY - Free Report) and Under Armour Inc. (UAA - Free Report) .
Management reiterated its fiscal 2017 revenue projections, and anticipates the same to grow at a high single-digit rate. On a currency neutral basis, it anticipates revenues to increase in a high single-digit to low double-digit range. The company’s revenue guidance reflects continued impact from currency headwinds, which is likely to persist and hurt second-half revenue forecasts. SG&A expenses for fiscal 2017 are now anticipated to grow in the low single to mid single-digits range.
For third-quarter fiscal 2017, the company expects revenues to grow in the mid single-digit range. Gross margin is projected to fall by nearly 100 to 125 bps in the quarter, mainly due to adverse currency movements. Further, SG&A expenses for the third quarter are estimated to grow at a mid single to high single-digit rate.
NIKE INC-B Price, Consensus and EPS Surprise
NIKE INC-B Price, Consensus and EPS Surprise | NIKE INC-B Quote
Zacks Rank & Stock to Consider
NIKE currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same industry is Francesca's Holdings Corporation , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
With a long-term EPS growth rate of 13.8%, Francesca's Holdings has outperformed earnings estimates consistently in the last five quarters, with an average four-quarter beat of nearly 26.6%. Further, estimates for the current fiscal have witnessed an uptrend in the last 30 days.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>