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Breaking Down Nike's (NKE) Q3 Earnings: North America, China & More

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Nike (NKE - Free Report) posted better-than-expected Q3 fiscal 2019 earnings and revenue after the closing bell Thursday. Shares of NKE had surged 15% this year heading into the release and popped 1.6% during regular trading hours, before dipping after-hours. So, let’s break down the sportswear giant’s footwear sales, as well as North American and Chinese revenue.

Quick Overview

Nike posted adjusted quarterly earnings of $0.68 a share, which topped our $0.63 per share Zacks Consensus Estimate by 8%. Investors should note that Nike’s management team is excellent and the firm almost always tops quarterly earnings projections. Last quarter, Nike beat our earnings estimate by over 15%.

Along with its solid earnings beat, Nike’s gross margin popped by 1.3% to reach 45.1%. The company attributed its margin expansion to higher average selling prices, favorable changes in foreign currency exchange rates, along with growth in its digital-focused Nike Direct business. Meanwhile, Nike’s selling and administrative expenses jumped 12% to $3.1 billion, driven in part by a 17% increase in overhead.

On the other end of the income statement, Nike’s quarterly revenue climbed roughly 7% to hit $9.611 billion and surpass our Zacks Consensus Estimate that called for $9.54 billion. This, however, marked a bit of a slowdown from Q2’s 10% revenue growth.





Nike stock was able to regain momentum over the last year on the back of a return to growth in its key North American market, which represents around 40% of total company sales, after a stretch of declines. With that said, NKE’s sales in its home market popped 7% to $3.810 billion. This fell short of our $3.87 billion NFM estimate and marked a slowdown from Q2’s 9% North American sales growth.

Despite the small miss, Nike proved its strength in the vital region as it fights off rival Adidas (ADDYY - Free Report) and blows away Under Armour (UAA - Free Report) . Meanwhile, Wall Street also likely paid close attention to the sportswear firm’s sales in Greater China.

Sales in China surged 19% to hit $1.588 billion, which came in well above our $1.54 billion estimate and represented the 19th consecutive quarter of double-digit revenue growth in the world’s second-largest economy. We should point out that Nike’s performance fell short of Q2’s 26% Chinese expansion. Still, Nike was able to post solid growth, while the country’s broader economic downturn really hurt the likes of Apple (AAPL - Free Report) , Alibaba (BABA - Free Report) , and many others.

On top of continued North American and Chinese growth, the company’s footwear business jumped. The company’s Nike brand footwear sales popped 9% from $5.605 billion in the year-ago period to reach $6.122 billion. More specifically, Footwear sales, which account for roughly 60% of total Nike sales, jumped 9% in North America—to outpace the region’s 7% total growth—and 19% in China.

Bottom Line

In the end, Nike’s direct-to-consumer push is likely to remain a key catalyst for the stock going forward. Meanwhile, the company remains focused on strategic wholesale partnerships with the likes of Foot Locker (FL - Free Report) , Nordstrom (JWN - Free Report) , and Dick’s Sporting Goods (DKS - Free Report) . Nike stock rested down nearly 4% in after-hours trading Thursday.

Make sure to head back to Zacks for a full breakdown of Nike’s conference call, in order to evaluate the sportswear powerhouse’s digital performance in the Amazon (AMZN - Free Report) age and check out any athleisure updates as NKE fights off competition from Lululemon (LULU - Free Report) and others.

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