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Nike 3Q19 results: North American sales disappoint

27 March 2019

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by Anchor

Nike reported 3Q19 results on Thursday (21 March), with net income of $1.1bn or adjusted EPS coming in at USc68 above the Refinitiv consensus estimate of USc65, and vs a net loss of $921mn, or USc57, in the year-ago quarter (we note however that the results cannot be compared due to effects from tax reform in 3Q18). Meanwhile, revenue rose 7% YoY to $9.611bn, but was in-line with the Refinitiv consensus expectation of $9.612bn (although it marked the first time in six quarters that Nike didn’t top expectations).

Although earnings were above analysts’ expectations, and total revenue was basically in-line with estimates, Nike shares came under pressure following the results and is down c. 5.3% from Thursday to Tuesday’s close (27 March). The catalyst for this seemed to be the weaker-than-expected North America sales number with Nike negatively impacted in part, by fewer people buying its Converse-branded merchandise. Revenues for the Converse shoe brand fell 2% YoY to $463mn, driven by declines in the US and Europe, according to Nike. North American sales increased 7% YoY to $3.81bn, excluding currency changes.

Nike also noted a 130-bpt jump in its gross margin to 45.1% “resulting from higher pricing and favourable exchange rates along with growth in Nike Direct.”

Europe, the Middle East and Africa, recorded a 12% YoY sales increase, excluding currency changes. In China, revenue climbed 24% YoY and Nike called out its “continued momentum in China,” saying it remains “bullish” about the country “despite uncertainty about tariffs.” “We have great momentum in China, but we are still far from realising the long-term opportunity in this market,” CFO Andy Campion told analysts on the conference call. In Asia Pacific and Latin America, sales rose by 14% YoY, as Nike’s business continued to grow more overseas than in the US.

Nike said its digital business surged 36% YoY. The company continues to invest in online initiatives like its mobile app and customisation options for customers. Shoppers using the Nike retail app to shop reportedly average 40% higher sales than those who don’t. Nike has shifted from its wholesale partners to selling as much as it can directly to consumers, through its own stores and website. The Group recently opened a high-tech flagship location in New York and it is also testing a new smaller-format store in Los Angeles.

Nike repurchased 9.8mn shares, worth $754mn, during the quarter under review. Its four-year, $12bn share repurchase programme was completed in 3Q19. During 3Q19, Nike also began its new four-year, $15bn share repurchase programme which the board authorised in June last year.

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