Nike Pro Hijab - via Flickr

Nike profit tops targets but margins disappoint some

26 September 2018: Nike Inc (NKE.N) topped first-quarter profit on Tuesday, but a small rise in gross margins and no change in its 2019 forecast despite the launch of a successful ad campaign was not enough for some investors, sending shares down 4 percent after hours.

“I think where the market might be slightly disappointed is around the gross margins ... it is slightly weaker than expected,” MainFirst Bank analyst John Guy said.

Nike gross margins rose 50 basis points to 44.2 percent in the reported quarter, in line with average analysts’ estimate, according to Thomson Reuters I/B/E/S.

“The numbers are good, but they weren’t wow enough,” said Jeff Auxier, founder & portfolio manager at Auxier Asset Management.

For the second quarter, during which it launched its campaign featuring former NFL quarterback Colin Kaepernick, Nike forecast revenue growth and gross margin expansion similar to the reported quarter.

Many analysts said the campaign plays to Nike’s core demographics in the United States, and has translated to 61 percent more merchandise sold during the period, according to Thomson Reuters Proprietary Research.

The Oregon-based athletic shoe maker also expects costs to grow in the low teens in the current quarter on higher investments in its digital platform and sports marketing during kickoff of the NBA and NFL seasons.

The company’s demand creation expense, or costs related to advertising and promotion, rose 13 percent to $964 million in the first quarter.

The company also maintained its forecast for fiscal 2019. (reut.rs/2OO7QLh)

However, Nike’s direct-to-consumer model helped sales in North America rise 6 percent, its second straight rise, showing signs of recovery after competition from rivals Adidas AG (ADSGn.DE) and Under Armour (UAA.N) eroded sales in three out of the last four quarters.

“We returned to strong growth in North America even faster than what we had expected,” Nike Chief Financial Officer Andrew Campion said on a post-earnings call with analysts.

Sales in North America rose 6 percent in the reported quarter.

Revenue rose 9.7 percent to $9.95 billion, beating estimates of $9.94 billion.

Analysts had expected the company to earn a profit of 63 cents per share.
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