Nike Manages To Beat Earnings Expectations But Shares Fall Due To Home Market

Nike Inc (NYSE: NKE) reported its fiscal second quarter earnings on Dec 19 after the bell. And there were good news, as both earnings and revenue topped expectations.

Benzinga · 12/20/2019 18:09

Nike Inc (NYSE: NKE) reported its fiscal second quarter earnings on Dec 19 after the bell. And there were good news, as both earnings and revenue topped expectations. But instead of going up, shares went down 3 percent up due to a miss on gross margin and its North American sales which are nothing less than a key segment.

Earnings Report

Revenue amounted to $10.3 billion with earnings of 70 cents per share and a gross margin of 44%. Although sales rose 5.3% over the last year to $3.98 billion in its home market, North America, this fell short of expectations which were $3.99 billion. About 40% of sales was brought in by this key segment. But things are more than looking up in China as executives revealed that it brought Nike nearly half a billion dollars in revenue on China's Singles' Day shopping celebration that takes place in November.

So the double digit growth streak has been maintained with sales expanding more than 20% over last year, amounting to $1.85 billion, beating expectations by $50 million. China comprised about 16% of fiscal 2019 revenues and it has consequently become an increasingly important cornerstone of Nike's expansion strategy. The more-than-athletic-shoe-maker rolled out its digital app in China last quarter as well.

As for guidelines, Nike executives expect both third-quarter and full-year revenue to be up by high single digits but gross margin for the third quarter is expected to remain roughly flat.

Competitors

Nike is facing rivalry in Under Armour (NYSE: UAA) whose shares rose 0.6 percent on Thursday whereas Adidas (OTC: ADDYY) dropped 0.3 percent. But solid demand in Europe and China and strong growth online has experts believing more upside in Nike's stock is possible beyond its 2019 rally. With the innovation and the digital connectivity with consumers Nike has exhibited this year, it seems that even Adidas will have a hard time catching up.

Outlook

Nike's plans for a new unisex shoe that has analysts beyond excited. As it decided to stop selling via Amazon.com, Inc (NASDAQ: AMZN) ending a pilot program from 2017, the company is strongly focusing on creating a direct relationship with consumers. And analysts expect a great deal from this strategy as its digital sales already rose 38% in the latest quarter. The athletic giant is also undergoing significant changes in its management and operations infrastructure.

Veteran CEO Mark Parker is stepping down so ServiceNow, Inc (NYSE: NOW)'s CEO John Donahoe can take over on January 13, 2020. Donahoe also led eBay Inc (NASDAQ: EBAY) as CEO along with being Nike's long-time board member so it will be interesting to see what kind of mark will he make on the company's business model. But being already involved since 2014, it is more likely he will not shake up things as much, assuming he already had plenty to say on Nike's current strategy.

Nike's stock has been in high demand in 2019 rising about 36 percent, and with a digital person with focus on e-commerce, there's no reason to think 2020 will be different. However, there are the internal cultural issues which surfaced during the past year so there isn't an exhaustive list of all the challenges that Donahoe will be bound to face. But Nike sure seems as strong as it has ever been.

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