Nike tanks after earnings as gross margins miss expectations

Eric Lafforgue/ Art in All of Us/ Corbis via Getty Images
  • Nike‘s fiscal first-quarter earnings and revenue topped analysts’ expectations as the company’s efforts to sell more products directly to consumers paid off.
  • But gross margin, which reflects the share of revenues Nike keeps after factoring in the cost of sales, missed expectations, sending the stock down in after-hours trading.
  • Nike reported a second-straight quarter of growth in North American footwear sales, which compete against Adidas and Under Armour.
  • Watch Nike trade in real time here.

Nike on Tuesday reported quarterly earnings that topped Wall Street’s forecasts as its efforts to sell more products directly to consumers paid off.

The apparel giant posted $US0.67 in adjusted earnings per share on $US9.95 billion in revenues. Analysts had forecast $US0.63 in adjusted EPS and revenues of $US9.94 billion, according to estimates compiled by Bloomberg.

However, Nike’s gross margin was weaker than analysts had forecast, sending shares down by as much as 4% in after-hours trading. Gross margin increased by 60 basis points to 44.2%, thanks to higher average selling prices. But this was shy of the expectation for 44.3%. Sales in China and Latin America were also weaker than forecast.

Sales increased across all regions and brand categories except equipment.

Nike reported a second-straight quarter of positive footwear-sales growth in North America with a 5% increase. It competes against Adidas, Under Armour, and others in this category and posted negative growth from May 2017 through the second quarter.

“Nike’s Consumer Direct Offence, combined with our deep line up of innovation, is driving strong momentum and balanced growth across our entire business,” CEO Mark Parker said in the earnings release.

Analysts were interested in how several notable events impacted Nike’s third-quarter performance, including the FIFA World Cup, investments in online stores, and the controversial Colin Kaepernick ad.

Nike said it spent $US964 million – up 13% from a year ago – on so-called demand creation to promote its brand. The expenses were driven by “sports marketing investments, brand campaigns and key sports moments.”

During the last earnings call, executives emphasised the investments they were making in digital, including direct-to-consumer online sales and plans to create a store with inventory influenced by what consumers were buying from nearby zip codes.

Those efforts paid off, according to Parker.

Nike’s stock has been a highflier this year, gaining 36% through Tuesday’s close and far outpacing the broader market.

It was also popular with millennial investors, who snapped up the stock amid the controversy surrounding the Kaepernick ad, according to data from Robinhood.

Nike tapped several athletes including Kaepernick, a former NFL player, as the faces of a campaign marking the 30th anniversary of its “Just Do It” slogan. Kaepernick had protested racial injustice by kneeling during the national anthem.

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