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Strength in Women’s and Basketball Propels Nike to Strong Fiscal Year Finish

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NIKE, Inc. (NKE) reported fiscal fourth-quarter and fiscal year 2015 financial results Thursday that leaped above Wall Street expectations despite significant currency headwinds.

Revenue growth, gross margin expansion and a lower tax rate more than offset increased SG&A expense and the volatile foreign currency environment, sending the stock up by more than 4 percent Friday.

Helped by strong gains in the women’s, direct-to-consumer and basketball businesses, revenue in the fiscal year grew by 10 percent to $30.6 billion and net income rose 22 percent to $3.3 billion, or $3.70 per diluted share.

“Fiscal 2015 was an outstanding year for NIKE,” president and CEO Mark Parker said in a statement. “Our consistent growth is fueled by our connection to the consumer and our ability to deliver innovation at an unprecedented pace and scale. At no time in our history has the growth potential been greater for Nike.”

Revenue in the fourth quarter ending May 31 rose 5 percent to $7.8 billion, up 13 percent on a constant currency basis, beating Wall Street estimates of $7.7 billion. Revenues for the Nike brand were $7.4 billion, up 13 percent in constant currency driven primarily by double-digit growth in North America, Europe and China. Sales on Nike.com grew by 31 percent in the quarter. Wholesale gains were stimulated by strong executions by retail partners such as Field House at Dick’s Sporting Goods, House of Hoops at Foot Locker and the Track Club with the Finish Line.

Revenues for Converse were $435 million, up 14 percent on a constant currency basis, mainly driven by market transitions to direct distribution in Austria, Germany and Switzerland and by strong performance in the United States.

Gross margin expanded 60 basis points to 46.2% of revenues. The increase was primarily attributable to higher average selling prices and continued growth in the higher-margin direct-to-consumer business, which more than offset higher product input and logistics costs.

SG&A expense increased by 6 percent to $2.6 billion. Marketing expense fell 7 percent to $819 million, reflecting higher investment in support of the World Cup in the fourth quarter of the prior year. Operating overhead expense increased 13 percent to $1.8 billion, reflecting continued growth in the direct-to-consumer business and targeted investments in infrastructure and consumer-focused digital capabilities.

Fourth-quarter net income increased 24 percent to $865 million, or $0.98 per diluted share, beating analyst estimates of $0.83 per share.

For fiscal 2015, revenues rose 14 percent on a constant currency basis. Revenues for the Nike brand rose 14 percent to $28.7 billion, driven by growth in every geographic region, with sales to wholesale customers up 10 percent and direct-to-consumer sales up by 29 percent to $6.6 billion. Sportswear sales grew by 20 percent for the year. Direct-to-consumer sales were helped by a 16 percent rise in comp store sales, a 50 percent rise in online sales and the opening of 64 new stores.

Running shoe sales increased by 9 percent for the year to almost $5 billion, led by success of premium running styles like the Air Zoom Pegasus 31, FlyKnit Lunar 3, Air Max 1 and Roshe styles, as well as core running styles like the Downshifter and Windflow.

Sales in the basketball segment grew by 21 percent to almost 4 billion, helped by the introduction of the Lebron 12, the Kyrie 1, Air Jordan XX9 and the Super Fly3, and by marketing events like the NBA All-Star Weekend in New York in February and the Nike World Basketball Festival in Spain last September.

The Nike women’s business enjoyed revenue growth of 20 percent to nearly $6 billion in fiscal 2015, driven by key apparel styles such as the Nike Pro bra collection and a broad assortment of tights collections.

Full-year revenues for Converse were $2.0 billion, up 21 percent on a constant currency basis, mainly due to market transitions to direct distribution in Austria , Germany and Switzerland, and by strong performance in the United States.

The company’s e-commerce business surpassed $1 billion in revenues last year, with mobile traffic exceeding desktop.

Gross margin for the fiscal year expanded by 120 basis points to $3.6 billion, or 46 percent of revenues. The increase was primarily due to higher average selling prices and continued growth in the higher margin direct-to-consumer business, which more than offset higher product input and logistics costs.

SG&A expense grew 13 percent to $9.9 billion for the year. Marketing expense increased by 6 percent from the prior year to $3.2 billion due to increased product launches and events, investments in the direct-to-consumer channel, and sports marketing activity.

Fiscal year net income increased 22 percent to $3.3 billion or $3.70 per share.

“We have demonstrated time and again that our diverse portfolio of brands, categories, geographies, and products is a competitive advantage that allows us to serve our consumer and drive growth better than anyone else,” Parker said of the company’s success. “And you can expect us to leverage that portfolio to further unlock growth around the world to expand the market and to increase share.”

Parker told analysts on the company’s quarterly earnings conference call Thursday that the passing of TPA, and hopefully passage of TPP, will put the company closer to being able to translate duty relief into accelerated investment in the top priority work it’s doing with advanced manufacturing in the U.S, enabling Nike to meet more local demand and to drive more innovation in the area of customization.

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