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Nike’s Bottom-Line Numbers Could Be Impressive

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Nike’s margins 

For the first two quarters of 2018, Nike’s (NKE) gross margin expanded by 70 basis points to 44.0% due to higher full-price selling and improved margins for Nike Direct operations. However, higher product costs and forex headwinds offset the expansion.

The SG&A expenses have risen in 2018. For the first two quarters, the SG&A expenses rose 10.0% YoY to $6.20 billion. The demand creation expenses rose 8%, while the overhead operating expenses grew 11%. The expenses were higher due to the expansion of direct-to-consumer and international operations. The SG&A expense rate, as a percentage of sales, increased by 20 basis points to 32.1%.

Nike’s margins could improve in fiscal 2019 due to product innovations and Nike Direct. In fiscal 2019, Nike expects that its gross margin will expand by 70 basis points. However, the SG&A expenses could grow at a high-single-digit percentage rate.

In the third quarter of fiscal 2019, Nike expects the gross margin expansion to be the same as its fiscal 2019 expectations. The SG&A expenses are expected to grow at a low-double-digit percentage rate.

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EPS numbers

Nike’s EPS for the first six months of fiscal 2019 was $1.19—compared to the EPS of $1.03 reported for the first two quarters of fiscal 2018. Higher revenues supported the bottom-line growth amid rising expenses and the higher tax rate.

For the third quarter, analysts expect Nike to report an adjusted EPS of $0.63—a deterioration compared to the adjusted EPS of $0.68 reported in the third quarter of fiscal 2018.

For fiscal 2019, analysts expect Nike to deliver an adjusted EPS of $2.65, which reflects an increase of 10.8% YoY. Nike’s management hasn’t provided the EPS outlook. However, management expects its fiscal 2019 tax rate to be in the mid-teens. For the third quarter, the tax rate is estimated to be 16%–18%.

Expectations for peers

For 2018, analysts expect Under Armour’s (UAA) adjusted EPS to be $0.22—an improvement compared to the adjusted EPS of $0.19 reported in 2017. For Lululemon Athletica (LULU) in fiscal 2018, analysts expect adjusted EPS growth of 43.4% YoY to $3.71.

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