How Nike’s 3Q18 Margins and Profitability Trended


Dec. 4 2020, Updated 10:53 a.m. ET

Nike cruises ahead of earnings expectations once again

Nike (NKE) reported its first quarterly loss in over 20 years in fiscal 3Q18. Net loss stood at $921 million or $0.57 per diluted share. However, the loss was driven by a $2 billion tax expense related to the enactment of the Tax Cuts and Jobs Act.

Excluding this one-time tax item, the company’s results were impressive. The company beat the Wall Street expectations for the 23rd consecutive quarter in a row. Nike’s adjusted diluted earnings stood flat at 68 cents during the quarter, outdoing consensus expectations of a 22% decline in EPS to 53 cents.

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Margins and profitability

Nike’s gross margin continued to decline and plunged 70 basis points to 43.8% of sales. The company has witnessed a fall in gross margin over the last eight quarters. However, as in the previous quarters, the current quarter’s deterioration was also a result of currency headwinds, which were partially offset by improving product costs.

As a result of falling margins, Nike has weaker margins than most peers. The company reported a trailing-12-month gross margin of 43.6% as compared to 50%, 45%, 46.6%, and 51.7% for Adidas (ADDYY), Under Armour (UAA), Sketchers (SKX), and Lululemon Athletica (LULU), respectively.

Looking forward

The management is expecting margins to show some improvement in the next quarter. Gross margin is projected to remain flat or increase slightly, as currency headwinds continue to offset stronger growth in gross margin. Fiscal 2019 should witness an even stronger improvement, which is likely to be in line with the company’s long-term business model.

ETF investors seeking to add exposure to NKE can consider the SPDR Dow Jones Industrial Average ETF (DIA), which invests 1.9% of its portfolio in NKE.

Read about the company’s stock market performance in the next section.


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