Several high-profile companies released earnings reports on Thursday after the market closed, led by athletic-goods giant Nike (NYSE: NKE). The sportswear titan had missed the mark in its Q4 earnings release back in June, falling below expectations and watching its stock plunge as a result. With a new quarter on tap, did Nike this time return to its winning ways?
We'll call it a draw
Last quarter's release missed EPS estimates of $1.37, coming in at $1.17. Not only had that number disappointed the Street significantly, but it had also declined $0.07 year over year. Revenue did grow by $70 million over the prior year, yet it similarly missed expectations. Investors were quick to react to the news, nuking Nike's stock to the tune of a 10% drop in after-hours trading.
Fortunately, the sportswear giant performed somewhat better this time around. Nike scored Q1 earnings per share of $1.23, topping analyst expectations of $1.12 for the quarter -- but also declining considerably from EPS of $1.36 a year earlier. Revenue also beat estimates, recorded at $6.67 billion for the quarter and up a total of 9.7%. Net income came in at $567 million, down from $645 million year over year.
Following the news, Nike shares fell 3% in the aftermarket session. The stock fell another 2.5% in Friday's morning session but recovered to finish down 1.1%.
China whistles a foul
The catalyst behind the year-over-year drops stemmed from an all-too-familiar story in recent news: a slowing Chinese market. The Asian nation's economic slowdown has slammed a number of companies recently, but the blow to Nike still shocked observers.
Nike brand president Charles Denson reported to analysts that the sluggish growth from China "appears to be slowing, creating a short-term impact to any business operating there." Future orders from the country declined by 6%, absurdly below estimates of a 1.2% gain. Nike's orders from China accelerated 22% in last year's Q1, demonstrating just how drastic yesterday's news hit the Oregon-based sportswear company. Total Chinese revenue increased 8% for Nike to $572 million.
Europe also struck out, with Western European revenue falling 6% to $1.17 billion. That was a far cry from the strong North American market, which saw revenue increase 23% to $2.7 billion for the quarter. The number could be a sign that the economic recovery in the United States has allowed consumers greater discretionary spending for consumer goods, an important factor for Nike's continued sales growth.
Nike's ho-hum earnings didn't open the door for its competitors on Friday. Athletic-goods maker Under Armour (NYSE: UA), whose stock has tripped over the last two weeks, continued its fall as shares edged down around half a percent in late-morning trading. Similarly, shares of sportswear company Lululemon Athletica (Nasdaq: LULU) fell a fraction of a percent, although Lululemon's stock surged more than 13% over the month of September.
What to watch for
In coming quarters, Nike will need to find a way to cut down on material and labor costs, both of which have weighed heavily on the broader consumer goods market. Investors looking at Nike will also have to keep a sharp eye on overseas developments. While the North American market looks strong, Nike must turn around its performance internationally. If not, the company will be hard-pressed to maintain the sizable advantage it currently enjoys over smaller rivals such as Under Armour.
Fool contributor Dan Carroll holds no positions in the stocks mentioned in this article. The Motley Fool owns shares of lululemon athletica. Motley Fool newsletter services have recommended buying shares of lululemon athletica, Under Armour, and NIKE, creating a diagonal call position in NIKE, and creating a bear put spread position in Under Armour. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.