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Nike: How Did It Perform in Fiscal 1H16?

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Analyzing Nike’s revenue performance in fiscal 1H16

Nike (NKE) had two good quarters in fiscal 2016, propelled by a higher demand for its premium products. The company’s revenue grew 4.8% YoY (year-over-year) to $16.1 billion in the first six months of fiscal 2016. The fiscal year ends May 31, 2016. In currency-neutral terms, revenue was up by 13%. Adverse forex movements resulting from a higher US dollar negatively impacted Nike’s revenue by about eight percentage points.

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Earnings drivers

Nike’s top-line growth was consistent with the sales growth in all geographies on a currency-neutral basis. The world’s largest athletic gear company also reported growth in most key categories, and in all channels. Footwear sales growth trended higher than average, partly powered by its Jordan brand. The performance for the sportswear, training, and running categories also showed traction.

E-commerce was another key growth driver for Nike, with online sales rising 48% YoY in 1H16.[1. On a currency-neutral basis] We’ll discuss Nike’s online performance in greater detail in part eight of this series.

However, headwinds were seen in sales of equipment, action sports, and the Converse brand. Converse sales in Europe, primarily the United Kingdom, offset positive growth trends in the United States and Asia-Pacific.

Earnings growth

Nike’s EPS (earnings per share) grew faster than sales in the first half of fiscal 2016. Diluted EPS came in at $1.12 in 1H16, up 23% YoY. The increase was a result of gross margin expansion, a lower effective tax rate, and share buybacks (PKW). You can read a more detailed analysis of Nike’s earnings and profitability expectations in parts nine and ten of this series.

In contrast, EPS for peers Under Armour (UA), VF Corporation (VFC), Adidas (ADDYY), and Lululemon Athletica (LULU) have grown slower than revenue in the last fiscal year. However, footwear rival Skechers’s (SKX) adjusted EPS grew at about twice the rate of its sales growth in 2015, with 66.4% EPS growth and 32.4% sales growth.

NKE, UA, and SKX together make up 1.6% of the portfolio holdings in the First Trust Consumer Discretionary AlphaDEX ETF (FXD). We’ll discuss the third-quarter revenue expectations for Nike and their drivers in the next article.

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