- Nike delivered another earnings beat, with an earnings growth of 23%.
- The company reported strong growth in China.
- Nike shares were up 8% in after hours.
Nike earnings for Q1 2016 turned out to be a near perfect report card. The results were better than expected on almost every count, EPS, revenue growth, Nike Futures, growth across geography and across segments. All this was achieved inspite of facing strong currency headwinds as more than 50% of Nike's revenue comes from outside USA. The stock rose around 8% in after-hours trading. Nike stock has returned more than 40% in the last one year, making it one of the best performing stocks in the period.
Earnings Beat Continues
Nike (NYSE:NKE) reported earnings of $1.34 on $8.4 billion revenue, beating analysts’ consensus of $1.19 EPS on revenue of $8.21 billion, delivering an earnings beat of more than 12%. Nike’s revenue grew by 5% against the expected growth of 3.7%. On a currency neutral basis, revenues were up by an impressive 14%. The growth was up in every major geography and across product segments. Profitability also improved, on the back of higher ASP (Average Selling Price), with gross margin expanding by 90 basis points to 47.5%. Increase in higher margin 'Direct To Customer' sales also helped in improving the margins.
What impressed investors most was the growth in Nike Futures. Nike Futures grew by 17% against expected growth of 11% on a constant currency basis. Growth in Nike Futures comprised of 11% increase in units and 6% increase in ASP. Growth in Nike Futures was better than expected in every geographical region.
Nike’s performance can be summed up by its performance in China. While China has given many sleepless nights to companies and investors alike, Nike had an ‘amazing’ run. Nike registered an impressive revenue growth of 30% (currency neutral) in China in Q1 2016, helped by the Track & Field World Championships hosted by Beijing. Even more impressive was its EBIT of 51% in Q1 2016. Nike expects to continue its performance in China on the strength of its strong brand and excellent products.
Growth in other geographic regions were equally impressive. Revenue in North America was up by 9%, in Western Europe it was up by 14% and 19% in emerging markets.
Strong Customer Loyalty And Brand Recognition
Nike has continued to invest heavily in R&D and brand building, keeping it years ahead of its competition. It enjoys a strong brand recognition and customer loyalty. Superior product quality has generated a customer loyalty which has allowed it to beat estimates quarter after quarter.
Nike’s superior product performance has helped it to fight off competition from Lulu (NASDAQ:LULU) and Skechers (NYSE:SKX). The company continues to enjoy more than a 60% market share in North America.
Nike expects mid single digit growth in the coming quarter. It expects its Q2 2016 margin to improve by 25 basis points, taking into account pressure from efforts to clear elevated levels of inventory in North America. It continues to expect around a 50 basis point improvement in margin during the fiscal 2016.
The Q1 2016 indicates that the Nike brand continues to enjoy a strong demand in all geographic divisions across all categories. Nike has also invested heavily in new products and improved its efficiency. Nike’s margins are likely to expand further due to increase in ASP and higher efficiency.