Evaluating Nike’s top line in 1H17

Nike, the largest sportswear manufacturer in the world, clocked total sales of $17.2 billion in 1H17. Sales rose 7.1% YoY (year-over-year), beating the consensus in both the quarters.

Nike’s Top-Line Growth Likely to Slow Down in 3Q17

Overseas markets drive growth

Growth was driven by strength in the overseas market, which grew by double digits. Nike derives around 55% of its sales from international markets. Its exposure is higher than that of competitors Under Armour (UAA), PVH (PVH), and Ralph Lauren (RL), which derive around 15%, 45%, and 34% of sales from foreign markets, respectively.

As a result, the company’s top line has remained somewhat shielded from the ongoing headwinds in the US apparel segment like retail bankruptcies and channel dislocation over the past one year.

Under Armour, on the other hand, delivered unimpressive 4Q results in January. The company blamed the US retail landscape for missing top and bottom line consensus forecasts. To learn about the performance of Nike in various geographies, read the next segment.

Currency headwinds and the way forward

While dependence on foreign markets has been mostly positive for Nike, it has also resulted in currency headwinds, tapering the company’s top line during the current fiscal year. In fact, currency headwinds shaved off nearly a fourth of the company’s growth in the first half of 2017.

The management anticipates currency to continue impacting sales for the remainder of the year. It has forecasted fiscal 2017 top-line growth to lie in the high-single-digit to low-double-digit levels on a currency-neutral basis. However, after including the currency impact, sales are likely to expand at a high-single-digit rate.

Third quarter sales are likely to grow in the mid-single-digit range. Wall Street expects a 5.4% YoY increase in its 3Q17 top line to $8.5 billion, which is lower than what the company achieved in the first half of the year.

ETF investors seeking to add exposure to NKE can consider the ProShares Ultra Consumer Goods ETF (UGE), which invests 2.4% of its portfolio in NKE.

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