Nike Stock Rose 7.9% Due to Strong Q2 2019 Numbers



Better-than-expected numbers

On December 20, Nike (NKE) stock was trading 7.9% higher in after-market trading following its results for the second quarter of fiscal 2019. Revenues of $9.37 billion and an adjusted EPS of $0.52 beat the projections of $9.18 and $0.46, respectively. On a year-over-year basis, the revenues grew 10%, while the adjusted EPS increased 13%. The bottom-line growth was cushioned by higher revenues amid an increased tax burden and higher costs.

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Strength in the Greater China operations and the fast-growing Nike Direct business were the main top-line growth catalysts. The revenues in Greater China rose 26% in the second quarter. North America improved considerably. North America’s revenues increased 9% on a YoY basis. Europe, the Middle East, and Africa delivered revenue growth of 8%. The revenues in the Asia-Pacific and Latin American regions grew 2%.

On a currency-neutral basis, the revenues from Nike Digital rose 41%. Mobile represents over half of the total Nike Digital sales. Nike’s footwear and apparel revenues rose 11% and 10%, respectively.

For fiscal 2019, CFO Andrew Campion stated that the revenue growth is expected to be stronger on a currency-neutral basis compared to previous expectations. He also added that uncertainty at the macroeconomic level has deepened. Strength in Nike Direct and product innovation will likely drive the top line. For fiscal 2019, currency neutral revenue growth is expected to be in high single-digit range and could head into the low double digits.

Other details

In the second quarter, Nike’s gross margin expanded by 80 basis points to 43.8% due to higher revenues. Nike witnessed a 14% rise in selling and administrative expenses in the second quarter due to higher marketing and advertising costs. As a percentage of Nike’s revenues, the selling and administrative expense rate deleveraged by 110 basis points to 33.5% due to higher revenues. The company’s demand creation expenses rose 4% to $910 million in the second quarter.


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