Nike is facing some headwinds to its overseas growth, but the big picture remains pretty solid. Image source: Nike, Inc.
Nike, Inc. (NKE 0.66%) announced fourth-quarter and full-year 2016 financial results on June 28, reporting sales growth of 6% for both the quarter and year. Earnings were also up for the full year, increasing 15% on slightly better margins and the higher revenues, though they fell 2% in the fourth quarter.
The company does continue to feel the impact of a very strong U.S. dollar, as well as slower growth in North America last quarter than is typical -- but things were far from bad for the athletic shoe and apparel maker. Here's a closer look at the details.
The numbers
| Metric | Q4 2016 | Q4 2015 | Change |
|---|---|---|---|
| Revenue | $8,244 | $7,779 | 6% |
| Net income | $846 | $865 | (2%) |
| Earnings per share | $0.49 | $0.49 | N/A |
| Gross margin | 45.9% | 46.2% | (30 basis points) |
Revenue and net income in millions. Data source: Nike earnings release.
| Metric | FY 2016 | FY 2015 | Change |
|---|---|---|---|
| Revenue | $32,376 | $30,601 | 6% |
| Net income | $3,760 | $3,273 | 15% |
| Earnings per share | $2.16 | $1.85 | 17% |
| Gross margin | 46.2% | 46% | 20 basis points |
Revenue and net income in millions. Data source: Nike earnings release.
What happened in the quarter
Here's a breakdown of how Nike's different business segments and geographies performed in the fourth quarter:
- North American footwear sales were up 2%, and apparel sales were down 2%. Overall, North American sales were flat. This is Nike's largest market.
- Sales in Western Europe, Nike's second largest market, were up 19% in total, with strong growth in footwear and apparel.
- Greater China was up 18%, with footwear up 24% and apparel up 9%.
- Japan also saw strong growth, with sales up 22%.
- The Converse subsidiary reported a nice quarter, with sales up 18%. This is a nice bounce-back as the company continues to evolve and refocus this brand.
- Converse finished the year with sales down 1%, a laudable result, considering revenue was down nearly 10% last quarter.
- A strong U.S. dollar continues to have a negative impact on Nike's sales and margins. Revenues would have climbed 9% without the impact of foreign exchange. The company didn't disclose the exact impact of foreign exchange on profit margins, saying only that it did play a role in the gross-margin decline.
- Higher expenses also played a role in Nike's flat profits in the quarter. Demand creation and operating overhead expenses both increased 7%, a faster rate than revenue growth. The company's effective tax rate of 21.2%, up from 17.8% in the year-ago quarter, also played a role in the profit decline.
- Nike repurchased 9 million shares for $540 million, at an average price of $60 per share.
- Over the past year, the company has repurchased 36.5 million shares.
The earnings release also reported that futures orders were up 8% versus the year-ago period, indicating relatively strong demand going into fiscal 2017.
Looking ahead
Nike continues to count on strong international demand to fuel its growth, as this quarter showed once again. Sales outside North America already make up more than half the company's revenue, and that number is only going to grow bigger in the years to come.
For now, that means the company is going to continue feeling the negative impact of weaker foreign currencies on its bottom line, but given time, those headwinds can become tailwinds. For now, it's a small price to pay for a top-notch company that dominates its industry yet still has big growth ambitions.
