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Nike Beats on Earnings and Revenue, but Margin Miss Dings Stock Price

Sky-high expectations for Nike’s second-quarter earnings report lifted it stock to an all-time high of $101.15 early on Thursday but a small margins miss sent it back down more than 2 percent despite earnings and revenue beats.

In a Nutshell: Nike’s second-quarter margin of 44 percent came in slightly behind the average Wall Street expectation of 44.1 percent and its mark of 43.8 percent last year. The margin miss stems from higher product costs related to the incremental tariffs imposed in North America, Nike said, although it was able to offset this impact somewhat with higher average selling prices and margin expansion in Nike’s DTC business and at Converse.

Selling and administrative expenses increased by 6 percent to $3.3 billion as Nike supported investments in “transformational capabilities” in relation to its DTC and international channels.

Inventory was up by 15 percent to $6.2 billion, although Nike said this was an effect of strong global consumer demand and a higher rate of on-time factory deliveries.

In October, Nike CEO Mark Parker stepped down following reports he had direct links to Alberto Salazer, a track and field coach who was barred from competition for four years under anti-doping regulations. The second quarter of FY2020 was Parker’s last full quarter as CEO. On Jan. 13, Nike board member John Donahoe will take over the position.

Sales: Revenue improved by 10 percent in the second quarter to $10.3 billion, above the $10.09 billion expected by Wall Street. The Nike brand earned more than 95 percent of that sum with $9.8 billion in sales, up 12 percent on a currency-neutral basis. Standout categories included sportswear, Jordan Brand products, running and continued footwear and apparel sales growth.

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Converse recorded revenue of $480 million, a 15 percent increase over the comparable period in FY19. This was due to the brand’s strong performance in Asia and Europe as well as a global success through e-commerce, Nike said.

Earnings: Nike brought in net income of $1.1 billion in the second quarter, up 32 percent over the same period last year. This led to a diluted EPS of 70 cents for the brand, up 35 percent from the previous mark, and better than the 58 cent average predicted by Wall Street.

Nike credited strong revenue growth, gross margin expansion in certain segments and a lower tax rate for the earnings victory.

“Nike delivered another strong quarter of accelerating, high-quality growth, driven by strategic and targeted investment in our digital transformation,” Andy Campion, executive vice president and chief financial officer with Nike, Inc., said in a statement. “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.”

CEO’s Take: In his final full quarter as CEO, Mark Parker praised Nike’s commitment to innovation and the healthy growth that leaves him positive about the company’s future.

“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,” Parker said. “Our entire Nike team is fueling our current momentum, and I’ve never been more optimistic about the future of this company.”