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Shares of NIKE Inc. (NKE - Free Report) declined 3.2% in the after-hours session yesterday as the company provided a soft outlook following the first-quarter fiscal 2018 results. While the company topped earnings and sales estimates for the fiscal first quarter, earnings dipped year over year and sales remained flat. This marked the company’s 21st straight quarter of earnings beat.
Overall, NIKE’s stock has increased 5.6% year to date, underperforming the Consumer Discretionary sector’s growth of 10.7%.
Earnings & Revenues
This athletic apparel, footwear and accessories retailer’s first-quarter earnings per share of 57 cents fell 22% year over year, but surpassed the Zacks Consensus Estimate of 48 cents. The year over year decline in earnings stemmed from planned gross margin reduction and higher tax rate, offset by slight SG&A leverage and lower share count.
Revenues of the swoosh brand owner remained flat at $9,070 million and beat the Zacks Consensus Estimate of $9,065 million, primarily driven by persistent growth at international locations and global NKE Direct business, offset partly by soft North American Wholesale revenues. This was in line with the company’s expectations for the quarter. Top line also remained flat on a currency neutral basis.
Revenues for the NIKE Brand rose 1% to $8,585 million, while constant-dollar revenues for the brand were up 2%. Results gained from growth in Greater China; Europe, Middle East & Africa (EMEA); and Asia Pacific & Latin America (APLA), along with solid growth in the Sportswear category.
Moreover, the NIKE brand recorded NKE Direct currency-neutral revenues growth of 11% in the first quarter. The growth in NKE Direct revenues was mainly owing to 19% increase in online sales, 5% comparable store sales growth and addition of new stores.
Additionally, revenues at the Converse brand declined 16% to $483 million owing to fall in North American revenues. On a currency neutral basis too, revenues dipped 16%.
Costs & Margins
Gross profit declined 4% to $3,962 million, while the gross margin shriveled 180 basis points (bps) to 43.7%. The decline in gross margin is mainly attributable to foreign currency headwinds, as well as some impact from a higher mix of off-price sales.
Selling and administrative expense inched down 1% to $2,856 million on account of higher operating overhead expenses, offset by a decline in demand creation expenses. Demand creation expenses fell 18% year over year. The favorable comparison was driven by lesser investments in key sports events compared with last year. Operating overheads rose 8% in the quarter owing to realignment costs related to the workforce reduction plan announced in June, as well as continued investments in NIKE Direct.
Balance Sheet & Shareholder-Friendly Moves
NIKE ended fiscal 2017 with cash and short-term investments of $5,519 million, long-term debt (excluding current maturities) of $3,472 million and shareholders’ equity of $11,993 million. Inventories as of Aug 31, 2017, grew nearly 6% to $5,211 million.
In the fiscal first quarter, NIKE bought back 15.3 million shares for $849 million under its four-year $12 billion program that was approved in Nov 2015. As of Aug 31, the company’s total repurchases under the program amounted to 95 million shares for roughly $5.3 billion.
Outlook
Following the first quarter results, the company stated that its overall outlook for fiscal 2018 remains unchanged. Going forward, the company expects continued strength in its international business and lower impact from foreign currency, net of hedging. However, the company expects its near-term results to be hurt by the challenging retail environment in the United States.
For fiscal 2018, reported revenues for the fiscal are still anticipated to increase in the mid-single digits, with gross margin contracting about 50-100 bps.
Reported SG&A is anticipated to increase in the mid-single digit range, including prudent operating overhead management, alongside investing in its Consumer Direct offence. Other income and expense, net of interest expense, is likely to be $80 million expense, while effective tax rate is anticipated in the range of 15-17%.
In second-quarter fiscal 2018, the company expects reported revenue in the low single-digit range. The company expects decline in North America and in the Converse segment to be partly offset by strength in international business. Gross margin decline is forecasted to be in line with the first quarter, owing to persistent currency headwinds. SG&A expense is anticipated to increase in the low double digits range, while for other income, net of interest expense, the company expects expense of $30-$40 million.
Adidas, with long-term earnings per share growth rate of 20.9%, has surged 14.8% in the last three months.
Carter's has increased 9.4% in the last three months. The stock has a long-term growth rate of 8%.
Wolverine World Wide has a long-term EPS growth rate of 12.5%. Further, the stock has returned 27.9% year to date.
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Image: Bigstock
NIKE (NKE) Stock Dips Despite Q1 Earnings & Sales Beat, Why?
Shares of NIKE Inc. (NKE - Free Report) declined 3.2% in the after-hours session yesterday as the company provided a soft outlook following the first-quarter fiscal 2018 results. While the company topped earnings and sales estimates for the fiscal first quarter, earnings dipped year over year and sales remained flat. This marked the company’s 21st straight quarter of earnings beat.
Overall, NIKE’s stock has increased 5.6% year to date, underperforming the Consumer Discretionary sector’s growth of 10.7%.
Earnings & Revenues
This athletic apparel, footwear and accessories retailer’s first-quarter earnings per share of 57 cents fell 22% year over year, but surpassed the Zacks Consensus Estimate of 48 cents. The year over year decline in earnings stemmed from planned gross margin reduction and higher tax rate, offset by slight SG&A leverage and lower share count.
Nike, Inc. Price, Consensus and EPS Surprise
Nike, Inc. Price, Consensus and EPS Surprise | Nike, Inc. Quote
Revenues of the swoosh brand owner remained flat at $9,070 million and beat the Zacks Consensus Estimate of $9,065 million, primarily driven by persistent growth at international locations and global NKE Direct business, offset partly by soft North American Wholesale revenues. This was in line with the company’s expectations for the quarter. Top line also remained flat on a currency neutral basis.
Revenues for the NIKE Brand rose 1% to $8,585 million, while constant-dollar revenues for the brand were up 2%. Results gained from growth in Greater China; Europe, Middle East & Africa (EMEA); and Asia Pacific & Latin America (APLA), along with solid growth in the Sportswear category.
Moreover, the NIKE brand recorded NKE Direct currency-neutral revenues growth of 11% in the first quarter. The growth in NKE Direct revenues was mainly owing to 19% increase in online sales, 5% comparable store sales growth and addition of new stores.
Additionally, revenues at the Converse brand declined 16% to $483 million owing to fall in North American revenues. On a currency neutral basis too, revenues dipped 16%.
Costs & Margins
Gross profit declined 4% to $3,962 million, while the gross margin shriveled 180 basis points (bps) to 43.7%. The decline in gross margin is mainly attributable to foreign currency headwinds, as well as some impact from a higher mix of off-price sales.
Selling and administrative expense inched down 1% to $2,856 million on account of higher operating overhead expenses, offset by a decline in demand creation expenses. Demand creation expenses fell 18% year over year. The favorable comparison was driven by lesser investments in key sports events compared with last year. Operating overheads rose 8% in the quarter owing to realignment costs related to the workforce reduction plan announced in June, as well as continued investments in NIKE Direct.
Balance Sheet & Shareholder-Friendly Moves
NIKE ended fiscal 2017 with cash and short-term investments of $5,519 million, long-term debt (excluding current maturities) of $3,472 million and shareholders’ equity of $11,993 million. Inventories as of Aug 31, 2017, grew nearly 6% to $5,211 million.
In the fiscal first quarter, NIKE bought back 15.3 million shares for $849 million under its four-year $12 billion program that was approved in Nov 2015. As of Aug 31, the company’s total repurchases under the program amounted to 95 million shares for roughly $5.3 billion.
Outlook
Following the first quarter results, the company stated that its overall outlook for fiscal 2018 remains unchanged. Going forward, the company expects continued strength in its international business and lower impact from foreign currency, net of hedging. However, the company expects its near-term results to be hurt by the challenging retail environment in the United States.
For fiscal 2018, reported revenues for the fiscal are still anticipated to increase in the mid-single digits, with gross margin contracting about 50-100 bps.
Reported SG&A is anticipated to increase in the mid-single digit range, including prudent operating overhead management, alongside investing in its Consumer Direct offence. Other income and expense, net of interest expense, is likely to be $80 million expense, while effective tax rate is anticipated in the range of 15-17%.
In second-quarter fiscal 2018, the company expects reported revenue in the low single-digit range. The company expects decline in North America and in the Converse segment to be partly offset by strength in international business. Gross margin decline is forecasted to be in line with the first quarter, owing to persistent currency headwinds. SG&A expense is anticipated to increase in the low double digits range, while for other income, net of interest expense, the company expects expense of $30-$40 million.
Zacks Rank & Stocks to Consider
NIKE currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include Adidas AG (ADDYY - Free Report) with a Zacks Rank #1 (Strong Buy), Carter's, Inc. (CRI - Free Report) and Wolverine World Wide, Inc. (WWW - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Adidas, with long-term earnings per share growth rate of 20.9%, has surged 14.8% in the last three months.
Carter's has increased 9.4% in the last three months. The stock has a long-term growth rate of 8%.
Wolverine World Wide has a long-term EPS growth rate of 12.5%. Further, the stock has returned 27.9% year to date.
4 Stocks to Watch After Massive Equifax Hack
Cybersecurity stocks spiked on recent news of a data breach affecting 143 million Americans. But which stocks are the best buy candidates right now? And what does the future hold for the cybersecurity industry?
Equifax is just the most recent victim. Computer hacking and identity theft are more common than ever. Zacks has just released Cybersecurity! An Investor’s Guide to inform Zacks.com readers about this $170 billion/year space. More importantly, it highlights 4 cybersecurity picks with strong profit potential.
Get the new Investing Guide now>>