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Why Nike Issued Soft Guidance for Q4

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Performance in the third quarter

Nike’s (NKE) revenue increased 7.0% on a year-over-year basis to $9.61 billion in fiscal 2019’s third quarter, which ended on February 28. This revenue was in line with analysts’ expectations. Nike’s revenue growth was 11% on a currency-neutral basis. Nike’s third-quarter revenue growth was driven by continued strength in its digital business. The company’s digital revenue grew 36% on a constant-currency basis and crossed the $1 billion mark for the first time.

Within the Nike brand, footwear revenue grew 9.2% to $6.1 billion while apparel revenue increased 6.0% to $2.7 billion. On a currency-neutral basis, the growth in Nike brand’s footwear and apparel categories was about 13% and 10%, respectively.

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Regional performance

Nike brand’s North American revenue grew about 7.0% to $3.81 billion in fiscal 2019’s third quarter but lagged behind analysts’ expectations of $3.87 billion. The company’s revenue growth on a currency-neutral basis was also 7.0%. Categories that performed well in the quarter included Sportswear, the Jordan brand, Nike Kids, and Running. The launch of innovative products and strong digital sales fueled the top-line growth in the region.

Revenue from Europe, the Middle East, and Africa grew about 6% to $2.44 billion on a reported basis. Revenue growth of 12% on a currency-neutral basis was driven by a double-digit rise in the Sportswear and Jordan brand categories. NIKE Digital revenue increased by double digits in the region.

Revenue in Asia-Pacific and Latin America increased 3% to $1.31 billion on a reported basis. The currency-neutral revenue growth of 14% was led by double-digit growth in both footwear and apparel. Japan and Korea delivered impressive results in the quarter. The region’s digital revenue grew over 60%.

The Nike brand’s revenue from Greater China increased about 19% on a reported basis to $1.59 billion in fiscal 2019’s third quarter. Currency-neutral growth of 24% in China was primarily driven by strength in the Nike Direct business. Digital sales grew over 60% in China.

Why the fourth-quarter outlook is soft

For the fiscal 2019’s fourth quarter, Nike expects its revenue to rise in the high-single-digit range on a constant-currency basis. On a reported basis, Nike expects revenue growth in low single digits, reflecting the impact of currency headwinds of about six percentage points. The company’s reported revenue growth forecast fell short of analysts’ expectation of revenue growth of about 6%.

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