Nike’s Q2 Easily Tops Wall Street’s Targets

Source:China Sport ShowRelease time:02-Jan-2020Clicks:

Article From：SGB MEDIA

Nike Inc. reported earnings in the second quarter ended November 30 rose 31.6 percent and climbed well ahead of Wall Street’s consensus estimate. Sales jumped 13 percent on a currency-neutral basis, led by robust gains in China and Europe. North America delivered a mid-single-digit sales gain.

Revenue increased to $10.3 billion in the second quarter, up 10 percent on a reported basis and up 13 percent on a currency-neutral basis, driven by strong growth across all geographies.

“In Q2, Nike has proven again that innovation is our greatest competitive edge – turning athlete insights into breakthrough product and digital services, as we offer more choice to more consumers at an accelerated pace,” said Mark Parker, chairman, president and CEO, Nike Inc. “Our entire Nike team is fueling our current momentum, and I’ve never been more optimistic about the future of this company.”

Diluted earnings per share for the quarter was 70, an increase of 35 percent driven primarily by strong revenue growth, gross margin expansion, selling and administrative expense leverage, a lower tax rate and a lower average share count. Wall Street’s consensus estimate had been 58 cents per share.

“Nike delivered another strong quarter of accelerating, high-quality growth, driven by strategic and targeted investment in our digital transformation,” said Andy Campion, executive vice president and chief financial officer, Nike, Inc. “As we deliver a relentless flow of innovation and scale Nike’s digital advantage, we are positioned for even greater competitive separation and long-term shareholder value creation.”**

Second Quarter Income Statement Review

Revenues for Nike, Inc. increased 10 percent to $10.3 billion, up 13 percent on a currency-neutral basis. Analysts had expected $10.09 billion.

Revenues for the Nike Brand were $9.8 billion, up 12 percent on a currency-neutral basis driven by growth across wholesale and Nike Direct; key categories including Sportswear, the Jordan Brand and Running, and continued growth across footwear and apparel.

Revenues for Converse were $480 million, up 15 percent on a currency-neutral basis, mainly driven by double-digit growth in Asia and Europe, as well as through digital globally.

Gross margin increased 20 basis points to 44.0 percent primarily due to higher average selling prices and margin expansion in Nike Direct and Converse, partially offset by impacts from higher product costs, primarily due to incremental tariffs in North America.

Selling and administrative expense increased 6 percent to $3.3 billion. Demand creation expense was $881 million, down 3 percent due primarily to a timing shift of investment in certain brand campaigns. Operating overhead expense increased 9 percent to $2.4 billion driven by continued investments in transformational capabilities, particularly in Nike Direct and global operations.

The effective tax rate was 10.7 percent, compared to 15 percent for the same period last year, primarily due to a more favorable impact from stock-based compensation.

Net income increased 32 percent to $1.1 billion driven primarily by strong revenue growth, gross margin expansion, selling and administrative expense leverage and a lower tax rate, while diluted earnings per share increased 35 percent to $0.70 reflecting a nearly 2 percent decline in the weighted average diluted common shares outstanding.

By Segment

North America’s sales improved 5.3 percent to $3.98 billion from $3.78 billion. Currency-neutral sales grew 5 percent. EBIT slipped 1.0 percent to $875 million from $884 million.

Europe, Middle East & Africa (EMEA)’s sales were up 9.7 percent to $2.54 billion from $2.31 billion and gained 14 percent on a currency-neutral basis. EBIT advanced 13.3 percent $510 million from $450 million.

Greater China’s sales advanced 19.6 percent to $1.85 billion from $1.54 billion and added 23 percent on a currency-neutral basis. EBIT advanced 23.7 percent to $510 million from $450 million

Asia Pacific & Latin America (APLA)’s revenues were up 13.1 percent to $1.47 billion from $1.3 billion. Currency-neutral sales gained 18 percent. EBIT climbed 17.4 percent to $377 million from $321 million.

Converse’s sales were up 12.9 percent to $480 million from $425 million and gained 15 percent currency-neutral. EBIT vaulted 104.5 percent to $90 million from $44 million.

November 30, 2019 Balance Sheet Review

Inventories for Nike, Inc. were $6.2 billion, up 15 percent compared to the prior-year period, reflecting strong consumer demand globally as well as a higher rate of on-time factory deliveries, and to a lesser extent, the impact from changes in foreign currency exchange rates.

Cash and equivalents and short-term investments were $3.5 billion, $539 million lower than last year as share repurchases, dividends, and investments in infrastructure more than offset proceeds from net income.

Share Repurchases

During the second quarter, Nike, Inc. repurchased 10.1 million shares for approximately $922 million as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of November 30, 2019, a total of 33.6 million shares had been repurchased under this program for approximately $2.9 billion.