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Nike Slam-Dunks Q1 Earnings Estimates

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Nike, Inc. (NKE) reported financial results Thursday for its first fiscal quarter ended Aug. 31 that smashed investor expectations, sending the company’s stock price to a new high of almost $126 (and a market capitalization above $100 billion) in early trading Friday, making it the best performer in the Dow Jones Industrial Average so far this year.

Diluted earnings per share increased 23 percent due to broad-based revenue growth, gross margin expansion, selling and administrative expense leverage, a lower effective tax rate and a lower average share count.

“Fiscal 2016 is off to a great start,” said President and CEO Mark Parker. “Our relentless pace of growth is driven by our proven strategy of putting the consumer first, obsessing innovation in everything we do and leveraging our powerful portfolio. We’re well-positioned to continue to deliver long term growth that is both sustainable and profitable.”

Despite significant currency headwinds, total revenue increased five percent to $8.4 billion, up 14 percent on a currency-neutral basis. Revenues for the Nike Brand were $7.9 billion, or 94 percent of total revenue, up 15 percent on a currency-neutral basis driven by growth in every geographic region and nearly every key category. Nike Brand DTC revenue rose by 21 percent, driven by new store expansion, continued strong growth in online sales, which increased by 46 percent, and a comp store sales increase of seven percent. Revenues for Converse were $555 million, up three percent on a currency-neutral basis, mainly driven by strong growth in the United States, partially offset by a decline in the United Kingdom.

Sales of women’s products enjoyed double-digit sales growth in the quarter.

Revenues rose by nine percent in North America, 14 percent in Western Europe and a whopping 30 percent in China.

Gross margin expanded 90 basis points to 47.5% of sales. The increase was primarily attributable to higher average selling prices and continued growth in the higher margin direct to consumer (DTC) business, partially offset by higher product input and warehousing costs.

SG&A expense increased by four percent to $2.6 billion. Net income increased 23 percent to $1.2 billion while diluted earnings per share increased 23 percent to $1.34.

In June the company launched the Pegasus 32 shoe, which featured high-performance Zoom Air technology that propels the runner forward with an ultra-responsive step. It delivers highly responsive cushioning and lightweight support to help athletes achieve their fastest runs. Also during the quarter the company introduced the Air Jordan SuperFly 4, with FlightSpeed technology, offering lightweight comfort and impact protection.

The company added a Nike LunarLaunch sock liner, a padded collar and breathable liner to the legendary Chuck Taylor All Star. The Chuck Taylor All Star 2 brought new comfort details, but stay true to the silhouette that Chuck fans know and love.

On the company’s quarterly earnings conference call, Parker told analysts: “2016 promises to be another year where the choices and investments we make propel us to serve the athlete with even more premium products, services and experiences. While we may be just out of the blocks in quarter 1, we are already in full sprint towards a year of continued growth for this brand and this Company.”

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