Behind Nike’s 20th Consecutive Earnings Beat in Fiscal 4Q17



Here’s why Nike beat its fiscal 4Q17 earnings estimates

Nike (NKE) released its fiscal 4Q17 results on June 29, reporting a 22.4% YoY (year-over-year) improvement in its EPS (earnings per share) to $0.60. This beat the Wall Street expectation of a 2% jump $0.50 and represents Nike’s 20th consecutive quarter to beat earnings estimates.

Nike’s growth in earnings was driven by a 3.5% YoY (year-over-year) rise in revenue and a 4% YoY fall in selling and administrative expenses, a lower tax rate, and a fall in the average share count. The company posted another quarter of gross margin decline, however. For fiscal 2017, Nike’s EPS rose 16% YoY to $2.51.

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Gross margin has plunged for the past five quarters

Nike’s gross margin has plummeted for the past five straight quarters. Its fiscal 4Q17 gross margin fell 180 basis points to 44.3% of sales, and 160 basis points of this decline were attributable to currency exchange. The remaining fall was a result of higher product input costs.

For fiscal 2017, Nike’s gross margin plunged 160 basis points to 44.6%. This is lower than competitors Adidas (ADDYY), Under Armour (UAA), and Lululemon Athletica (LULU), which posted margins of 48.6%, 46.3%, and 51%, respectively, for the past 12 months.

Nike did a fairly good job with other expenses in fiscal 4Q17. Demand creation fell 10%, while operating overhead expenses fell 1%.

Looking forward

Nike’s management expects its fiscal 2018 gross margin to expand above the upper end of its long-term goal of a 30–50-basis-point expansion on a currency-neutral basis. On a reported basis, however, its gross margin could contract by as much as 50 basis points next year.

Nike’s EBIT (earnings before interest and tax) is projected to expand at a double-digit currency neutral rate, as selling, general, and administrative expenses should grow in the mid-single-digit range for the year.

Notably, ETF investors looking to add exposure to NKE can consider the ProShares Ultra Consumer Goods ETF (UGE), which invests 2.3% of its total portfolio in NKE.


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