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Nike Credits Tax Act With First Operating Loss in Decades

Nike took a major operating loss in its third quarter thanks to the recently amended tax law, though the retailer still managed to beat expectations.

In a nutshell: Nike Inc. was hit hard by taxes, seeing a $921 million operating loss—its first net loss in roughly two decades, according to ABC News. During the third quarter, as a result of enactment of the Tax Act in December, Nike recorded additional income tax expense of $2 billion primarily related to the transition tax on its accumulated foreign earnings and the re-measurement of deferred tax assets and liabilities.

However, the sneaker giant, which is in the midst of a misconduct scandal since two high-level executives left the company last week, still beat analysts’ forecast. Nike reported $0.68 in adjusted earnings per share, beating estimates of $0.53 a share.

Nike’s revenues were driven by international markets including Greater China, EMEA and APLA, as well as double-digit growth in Nike Direct and growth in the sportswear and basketball categories.

Sales: Net revenues for Q3 increased 7 percent to $9 billion, up 3 percent on a currency-neutral basis. Revenues for the Nike Brand were $8.5 billion, up 4 percent on a currency-neutral basis. Meanwhile, revenues for Converse were down 8 percent to $483 million. The heritage brand’s international and digital growth were more than offset by declines in North America.

Earnings: Net earnings decreased 12 percent to $1.2 billion. Net loss was $921 million and diluted net loss per share was $0.57, driven by the enactment of the Tax Act.

CEO’s Take: “Nike’s Consumer Direct Offense drove strong double-digit growth across our international geographies, led by Greater China,” said Mark Parker, chairman, president and CEO of Nike, Inc. “As we close Q3, we now see a significant reversal of trend in North America, as momentum accelerates through the scaling of new innovation platforms and differentiated Nike Consumer Experiences expand across the marketplace.”