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Nike’s Q4 Earnings Miss Sparks Volatility but Strong Sales Save the Day

Calling FY19 a “pivotal year” for the brand, Nike released its fourth quarter and full-year financial results, revealing lower-than-expected earnings but strong sales growth that Oregon athletic brand attributed to its strategic investments in both product innovation and more robust digital channels.

In a Nutshell: Nike’s selling and administrative expenses rose by 9 percent to $3.4 billion in the fourth quarter, showcasing the brand’s commitment to an “end-to-end” digital transformation built on investments in data analytics. Nike’s gross margin also rose in the fourth quarter as a result of foreign currency impacts and higher average selling prices, though those gains were largely offset by higher product costs and supply chain investments.

As a result of the mixed results, Nike stock briefly saw volatility, rising slightly after market close before leveling out at about a 0.3 percent loss in value by publishing time.

Revenue growth was the key for Nike after disappointing investors with poor earnings in both its full-year and Q4 results. A strong Q4 performance by Nike’s DTC and wholesale channels was further enhanced by growth in both the brand’s running category and Air Jordan sneaker line.

Sales: In the fourth quarter, Nike recorded sales of $10.2 billion, up 10 percent on a currency-neutral basis over the comparable period and above the average analyst estimate of $10.16 billion. Nike brand’s made up $9.7 billion of that total, up 10 percent over the previous Q4, and Converse earned the remaining $491 million, stagnant relative to the prior year’s fourth quarter.

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For the full year, Nike pulled in $39.1 billion, even with analyst projections and up 11 percent on a currency-neutral basis compared to FY18. Nike Direct showed strong growth in FY19, boasting revenue growth of 16 percent on $11.8 billion in sales. Nike said this was driven by a 35 percent increase in digital commerce sales and a 6 percent increase in comparable store sales, aided by the net addition of new stores during the year.

Earnings: Despite solid sales growth, Nike was unable to meet earnings expectations for either the fourth quarter or FY19. In Q4, Nike earned net income of $989 million for 62 cents EPS, below analyst expectations of 66 cents. Nike pointed to its higher selling and administrative expenses and a higher tax rate as possible culprits behind the disappointing earnings, marginally offset by revenue growth and margin expansion.

The story was more of the same for the brand’s full-year earnings as Nike pulled in $4 billion in net income during the year for an EPS of $2.49. However, analysts predicted a slightly healthier EPS of $2.54 for the sneaker and sportswear powerhouse.

CEO’s Take: Nike chairman, president and CEO Mark Parker, said the brand was proud of its investments in FY19, alluding to stronger growth in the future despite the short-term disappointment from investors.

“FY19 was a pivotal year for Nike as we continue to bring our Consumer Direct Offense to life throughout the marketplace,” Parker said in a statement. “Our distinctive innovation and digital advantage led to accelerated growth across our complete portfolio, while our brand fueled deeper relationships with consumers around the globe.”

Additionally, Andy Campion, EVP and CFO for Nike, suggested that FY19 was a triumph considering challenging market conditions across the globe.

“Reflecting on our FY19 performance, it is clear that growth is paramount at Nike, and that our strong growth is being driven by strategic transformation,” Campion explained. “Amid foreign exchange volatility, our double-digit currency-neutral revenue growth and expanding ROIC showcase Nike’s unrivaled ability to create extraordinary value for consumers and shareholders over the long term.”