Nike Inc. (NYSE:NKE) released its financial results for the second quarter of fiscal 2020 on December 19 after the market closed. The company’s earnings and revenue surpassed Refinitiv’s expectations thanks to robust sales of apparel online and limited-edition Jordan sneakers in stores.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Snapshot of the quarter ” data-reactid=”12″>Snapshot of the quarter
The company, which is known for its athletic shoes and apparel, recorded earnings of earnings of 70 cents per share, up 35% from the prior-year quarter. Revenue surged 10% on a reported basis and 13% on a currency-neutral basis to $10.3 billion courtesy of strong growth across all regions. Analysts had anticipated earnings of 58 cents per share on $10.09 billion in revenue.
During the quarter, Nike’s gross margin jumped to 44% on the back of higher average selling prices as well as a bigger margin in NIKE Direct and Converse, which was only partly offset by mounting product costs.
At the end of the quarter, the company had cash and cash equivalents and short-term investments at a combined $3.5 billion.
“In Q2, NIKE has proven again that innovation is our greatest competitive edge – turning athlete insights into breakthrough product and digital services, as we offer more choice to more consumers at an accelerated pace,” Chairman and CEO Mark Parker said. “Our entire NIKE team is fueling our current momentum, and I’ve never been more optimistic about the future of this company.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Performance in North America and China ” data-reactid=”23″>Performance in North America and China
In North America, sales soared 5.3% in the second quarter to $3.98 billion. This, however, fell short of estimates of $3.99 billion. Nearly 40% of Nike’s total fiscal 2019 revenue came from North America.
Sales in Greater China increased by 23% to $1.85 billion in the reported quarter. The results show the company has managed to strengthen its position in China despite the ongoing trade war as well as the civil unrest in Hong Kong.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Online sales and direct-to-consumer initiative ” data-reactid=”26″>Online sales and direct-to-consumer initiative
The footwear and apparel giant recorded 38% growth in digital sales. The company continues to invest in enhancing its online business. This includes improving mobile applications such as SNKRS app.
Through Nike’s own websites, app and stores, the company is focussing on augmenting its direct-to-consumer business. The company has been encouraging customers, during the last two years, to shop preferably from branded stores, apps and website rather than purchasing from third-party retailers. In order to further its direct-to-consumer business, the athletic footwear giant announced in November that it would stop selling sneakers and athletic gear to Amazon (NASDAQ:AMZN) directly. Direct-to-consumer business makes up about 30% of Nike’s yearly sales.
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For fiscal year 2020 and third quarter, Nike expects revenue to grow by high single digits. On the other hand, the company expects flat gross margin for the third quarter.
Disclosure: I do not hold any positions in the stocks mentioned.
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