NIKE (NKE) Gains on Q4 Earnings & Sales Beat, Guides FY18 – Zacks.com
Shares of NIKE Inc. (NKE – Free Report) advanced 7.8% in the after-hours session yesterday following the company’s robust fourth-quarter fiscal 2017 results. While earnings topped estimates for the 20th straight quarter, revenues turned around to post a beat compared with a miss in the prior quarter. Moreover, both the top line and bottom line improved year over year.
Overall, NIKE’s stock has declined 4.6% in the last three months, underperforming the Zacks categorized Consumer Discretionary sector’s growth of 2.1%.
Earnings & Revenues
This athletic apparel, footwear and accessories retailer’s fourth-quarter earnings per share of 60 cents rose 22% year over year, comfortably beating the Zacks Consensus Estimate of 49 cents. Earnings were fueled by sales growth, selling & administrative expense leverage, lower tax rate and a fall in share count, somewhat offset by a drop in gross margin.
Revenues of the swoosh brand owner advanced 5% to $8,677 million and surpassed the Zacks Consensus Estimate of $8,613 million primarily driven by growth at international locations and global Direct-to-Consumer (“DTC”) businesses. Sales grew 7% on a currency neutral basis.
Revenues for the NIKE Brand increased 5% to $8,127 million, while constant-dollar revenues for the brand were up 7%. Results gained from a double-digit increase in Western Europe, Greater China and Emerging Markets, along with solid growth across Sportswear and Running categories.
Moreover, the NIKE brand recorded DTC currency-neutral revenues growth of 12% in the fourth quarter and 18% for fiscal 2017. The growth in DTC revenues was mainly owing to 30% growth in online sales, 7% comparable store sales growth and addition of new stores.
Additionally, revenues at the Converse brand rose 8% to $554 million. On a currency neutral basis, revenues for the brand advanced 10% backed by market transition in Italy and solid eCommerce (DTC) growth.
Costs & Margins
Gross profit inched up 1% to $3,823 million, while the gross margin shriveled 180 basis points (bps) to 44.1%. The decline in gross margin is attributable to higher product costs and foreign currency headwinds, which neutralized the gains of higher average selling prices.
Selling and administrative expense fell 4% to $2,665 million on account of lower operating overhead costs and demand creation expenses. Demand creation expenses dropped 10% as majority of the demand-related expenses were incurred in the beginning of fiscal 2017 for the Olympics and the European Football Championship. Operating overheads dropped 1% in the quarter as lower administrative costs more than mitigated the expenses related to investments in the DTC business.
Balance Sheet & Shareholder-Friendly Moves
NIKE ended fiscal 2017 with cash and short-term investments of $6,179 million, long-term debt (excluding current maturities) of $3,471 million and shareholders’ equity of $12,407 million. Inventories as of May 31, 2017, grew nearly 4% to $5,055 million.
During the fiscal fourth quarter, NIKE bought back 14.9 million shares for $820 million under its four-year $12 billion program that was approved in Nov 2015. As of May 31, the company’s total repurchases under the program amounted to 79.8 million shares for roughly $4.4 billion.
Looking ahead, the company remains on an aggressive growth path with focus on its “triple-double” strategy and the recently announced Consumer Direct Offense. The company has made significant progress on its triple double strategy focusing on doubling innovation, speed and direct connection with customers. With regard to innovations, the company’s Breaking2 initiative, ZoomX and Air VaporMax platforms have been extremely successful. Further, the company has returned to growth in the basketball shoes category driven by innovations.