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US Dollar at Decade Highs Casts a Shadow over Nike’s Performance

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Key revenue drivers for Nike

Nike (NKE) declared its 3Q15 results on March 19 for the quarter ending February 28, 2015. The company’s financial year ends May 31, 2015. Revenues grew to $7.5 billion in the quarter, up from ~$7.0 billion in 3Q14, a growth rate of 7% year-over-year. The growth rate for the first nine months of the current fiscal year was even higher—revenues grew 12% year-over-year to $22.8 billion.

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Revenue expectations

However, revenue growth was disappointing for the markets. Nike’s reported revenues missed consensus Wall Street analyst estimates by 2.6%. The markets had expected the company to report revenues of ~$7.7 billion. This was the first quarter in five when Nike missed consensus revenue estimates.

In contrast, rival Under Armour (UA) and Nike’s wholesale channel firms Foot Locker (FL) and DICK’s Sporting Goods (DKS) provided Wall Street with both revenue and earnings beats.

Currency headwinds

The revenue growth rate in 3Q15 was affected by the appreciating US dollar (UUP). Revenues grew by 13% in 3Q15 in constant currency terms. Nike derives ~56% of its revenues from outside North America. Since the company reports financial results in US dollars, the performance of the dollar versus foreign currencies affects the company’s performance.

The US dollar trade-weighted index is up 15.8% since the start of 2014, its highest levels in over a decade. The euro has also depreciated versus the dollar. The dollar is up by ~31% versus the euro since the start of 2014 through March 13, 2015. In the quarter ending February 28, 2015, the dollar has appreciated by ~11%. Nike derived about $5.5 billion in revenues from its European segments in the first nine months of fiscal 2015—that’s about 24.1% of the total.

Nike and Under Armour constitute ~0.44% of the portfolio holdings in the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV). SPY tracks the S&P 500 Index. Currency headwinds have affected the performance of the multinational firms included in SPY. Profit warnings are piling up for 1Q15 earnings, mostly due to a stronger dollar.

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