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Market Volatility Nearly Wipes Out Gains from Nike’s Strong Second Quarter

The first quarter of sales have been released following Nike’s endorsement of NFL quarterback Colin Kaepernick, and despite some backlash, sales were strong in North America and continued to grow in China and Europe over the second quarter of fiscal 2019.

Nike’s second-quarter revenue in North America and Greater China exceeded market estimates, according to Bloomberg, and share prices shot up on Friday as a result. Nike stock rose as high as 9.4 percent in early trading Friday amid a market selloff that saw the Dow lose 414 points by the end of trading.

However, by the end of Dec. 24, another market selloff saw Nike shares fall back to $68.17, just above the mark of $67.45 that was set prior to the release of the earnings report on Friday. Nike stock value had reached a high of $73.59 in the interim period. Regardless, after losing ground to Adidas with 4 quarters of slumping sales, Nike has had three positive quarters in a row.

In a Nutshell: Nike’s second-quarter resulted in double-digit revenue growth the organization credited to strategic execution of its “Consumer Direct Offense,” a corporate program announced in June of 2017 that was designed to make the world’s largest sportswear company more competitive in the digital marketplace.

Nike also opened a new 68,000 square foot flagship retail location on Fifth Avenue in New York City in November.

Sales: Revenue was up 10 percent in the quarter to $9.4 billion—$8.9 billion of those sales were from the Nike Brand and $425 million was provided by Converse. Sales for Converse, alone, were up 6 percent, “driven by growth in Asia and digital,” Nike said.

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Nike recorded North America sales of $3.782 billion during the quarter, up 8 percent over the same period in fiscal 2018. Greater China sales rose 26 percent, year-over-year, in the second quarter with $1.544 billion in total sales.

Over the last three quarters, Nike has maintained a revenue growth rate of 10 percent, for a total of $19.322 billion in sales.

Earnings: Income also rose 10 percent, to $847 million, generating a diluted earnings per share increase of 13 percent to $0.52.

Aside from strong revenue growth, Nike expanded its gross margin 80 basis points to 43.8 percent thanks to “higher average selling prices and margin expansion in Nike Direct” but the company acknowledged improvements were partially offset by higher product costs.

CEO’s Take: Mark Parker, chairman, president and CEO of Nike, Inc. attributed his company’s success to a stronger commitment to digital technologies that allowed Nike to produce strong results in multiple markets over the quarter. Looking ahead, Parker said Nike would continue to advance efforts to modernize its supply chain and retail operations

“Nike’s ambitious digital transformation is driving strong results and momentum in North America and in our international geographies,” Parker said. “We’re incredibly energized about 2019–with a full innovation pipeline; the most personal, responsive retail experiences in the industry; and a supply chain that’s delivering speed at scale.”

Andy Campion, executive VP and CFO of Nike Inc. added to Parker’s comments.

“Amidst an increasingly dynamic macro environment, what is certain is that Nike’s execution of the ‘Consumer Direct Offense’ is driving consistently strong growth across our diverse, global portfolio,” Campion said. “As we continue to invest in digital transformation, we are driving consumer-centric disruption in our industry and unlocking new opportunities for growth.”