Nike Forges Ahead, Reiterates Full-Year Guidance

Nike (NKE 1.20%) released fiscal fourth-quarter 2019 results on Thursday after the market closed, largely delivering as promised as it works to expand the reach of its iconic brand in the face of fluctuating currencies and macroeconomic challenges.

The athletic footwear and sportswear giant also reaffirmed its goals for the coming year, leaving shares little changed ahead of what could be an eventful weekend for the world's trade landscape given planned talks between the U.S. and China during this year's G-20 summit in Japan.

Image source: Nike.

Nike results: The raw numbers

Data source: Nike. *For the quarter ended May 31, 2019. GAAP = generally accepted accounting principles. 

What happened with Nike this quarter?

• Though we don't typically pay close attention to Wall Street's demands, consensus estimates predicted higher earnings of $0.66 per share on a 3.9% reported increase in revenue.
• Revenue climbed 10% on a constant currency basis, exceeding guidance provided in March for top-line growth "squarely in the high-single-digit range."
• Nike brand revenue grew 10% at constant currencies to $9.7 billion, thanks to NIKE Direct and wholesale growth, as well as strength in footwear, apparel, sportswear, Jordan, and basketball products. Within that:
• On a geographic basis:
  • North American Nike brand revenue climbed 7%, or up 8% in constant currency, to $4.165 billion.
  • Europe, Middle East, and Africa region revenue was flat as reported, but increased 9% adjusted for currencies, to $2.457 billion.
  • Greater China revenue grew 16%, or 22% at constant currencies, to $1.697 billion.
  • Asia-Pacific/Latin American revenue fell 4%, but climbed 9% adjusted for currencies, to $1.379 billion.
• Converse revenue was $491 million, roughly flat compared to last year on a constant currency basis as double-digit growth in Asia was offset by lower sales in the U.S. and Europe.
• Gross margin expanded 80 basis points to 45.5%, as supply chain investments and higher product costs were only partially offset by higher average selling prices, foreign currency adjustments, and Nike Direct growth.
• Nike repurchased and retired 10.6 million shares for $897 million this quarter.

What management had to say

"[Fiscal year 2019] was a pivotal year for Nike as we continue to bring our Consumer Direct Offense to life throughout the marketplace," stated Chairman and CEO Mark Parker. "Our distinctive innovation and digital advantage led to accelerated growth across our complete portfolio, while our Brand fueled deeper relationships with consumers around the globe."

"Reflecting on our FY19 performance, it is clear that growth is paramount at Nike, and that our strong growth is being driven by strategic transformation," added CFO Andy Campion. "Amid foreign exchange volatility, our double-digit currency-neutral revenue growth and expanding [returns on invested capital] showcase Nike's unrivaled ability to create extraordinary value for consumers and shareholders over the long term."

Looking forward

During the subsequent earnings conference call, Campion told investors Nike expects currency-neutral revenue growth in its current first quarter of fiscal 2020 to be again "squarely in the high-single-digit range." After accounting for an estimated 4 percentage points of foreign-exchange headwinds, that should bring reported revenue growth next quarter "in line to slightly above" the 4.1% it just delivered above.

Looking further ahead and based on current exchange rates, Campion added that the impact of currencies on revenue should "largely abate" starting in Nike's fiscal second quarter.

As such, Nike reiterated its preliminary guidance for full-year fiscal 2020 reported revenue growth in the high-single-digit range, marking a slight acceleration from its growth in fiscal 2019. The company sees gross margin for the coming year continuing to expand by around 50 basis points.

In the end, the market's muted reaction is evidence this report contained no significant surprises. But it did highlight Nike's steadily improving fundamentals, progress on its global growth initiatives, and its enviable leadership position in the worldwide sportswear, apparel, and athletic footwear industries despite the broader macroeconomic uncertainties it faces. And I think investors should be happy with where it stands today.