Nike Inc (NYSE:NKE) reported financial results for its fiscal 2017 second quarter ended November 30, 2016. Global consumer demand drove revenue growth across the NIKE Brand portfolio. Diluted earnings per share were up 11 percent and grew faster than revenue, primarily due to selling and administrative expense leverage and a lower average share count.

“NIKE’s ability to attack the opportunities that consistently drive growth over the near and long term is what sets us apart,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “With industry-defining innovation platforms, highly anticipated signature basketball styles and more personalized retail experiences on the horizon, we are well-positioned to carry our momentum into the back half of the fiscal year and beyond.”

Second Quarter Income Statement Review

  • Revenues for NIKE, Inc. increased 6 percent to $8.2 billion, up 8 percent on a currency neutral basis.
    • Revenues for the NIKE Brand were $7.7 billion, up 8 percent on a constant currency basis, driven by double-digit currency neutral growth in Western Europe, Greater China and the Emerging Markets as well as the Sportswear and Running categories.
    • Revenues for Converse were $416 million, up 5 percent on a currency neutral basis, driven by strong growth in North America.
  • Gross margin contracted 140 basis points to 44.2 percent, as higher average selling prices were more than offset by higher product costs, unfavorable changes in foreign exchange rates and the impact of higher off-price sales.
  • Selling and administrative expense declined 2 percent to $2.5 billion. Demand creation expense was $762 million, relatively unchanged from the prior year. Operating overhead expense decreased 3 percent to $1.7 billion, as continued investments in Direct-to-Consumer (DTC) were offset by productivity gains compared to the prior year.
  • Other income, net was $18 million comprised primarily of non-operating items, and to a lesser extent, net foreign exchange gains. For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other income, net, combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $29 million.
  • The effective tax rate was 24.4 percent, compared to 19.1 percent for the same period last year, primarily due to an increased mix of U.S. earnings, which are generally subject to a higher tax rate.
  • Net income increased 7 percent to $842 million, while diluted earnings per share increased 11 percent to $0.50, reflecting revenue growth, selling and administrative expense leverage and a three percent decline in the weighted average diluted common shares outstanding, partially offset by lower gross margin.

November 30, 2016 Balance Sheet Review

  • Inventories for NIKE, Inc. were $5.0 billion, up 9 percent from November 30, 2015, due to a one percent increase in NIKE Brand wholesale unit inventories and increases in average product costs per unit primarily due to product mix, as well as higher inventories associated with growth in DTC.
  • Cash and short-term investments were $5.9 billion, $173 million lower than November 30, 2015 as growth in net income and proceeds from the issuance of debt in the second quarter of fiscal 2017 were more than offset by share repurchases, higher dividends, investments in infrastructure and a reduction in collateral received from counterparties to foreign currency hedging instruments.

Share Repurchases

During the second quarter, NIKE, Inc. repurchased a total of 17.0 million shares for approximately $900 million as part of the four-year,$12 billion program approved by the Board of Directors in November 2015. As of November 30, 2016, a total of 56.0 million shares had been repurchased under this program for approximately $3.1 billion. (Original Source)

Shares of Nike are currently rising 2.32% to $52.99, or up $1.20 in pre-market trading Wednesday. NKE has a 1-year high of $68.20 and a 1-year low of $49.01. The stock’s 50-day moving average is $50.92 and its 200-day moving average is $54.06.

On the ratings front, Nike has been the subject of a number of recent research reports. In a report released yesterday, Brean Murray Carret analyst Eric Tracy maintained a Hold rating on NKE. Separately, on December 16, Canaccord Genuity’s Camilo Lyon reiterated a Hold rating on the stock and has a price target of $51.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Eric Tracy and Camilo Lyon have a yearly average return of 6.5% and a loss of -2.2% respectively. Tracy has a success rate of 51% and is ranked #505 out of 4288 analysts, while Lyon has a success rate of 46% and is ranked #3750.

Overall, one research analyst has rated the stock with a Sell rating, 10 research analysts have assigned a Hold rating and 17 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $62.00 which is 21.4% above where the stock opened today.

NIKE, Inc. engages in the design, development, marketing, and sale of sports and lifestyle footwear, apparel, and equipment, accessories and services. Its athletic footwear products are designed primarily for specific athletic use, although a large percentage of the products are worn for casual or leisure purposes. It focuses on NIKE Brand and Brand Jordan product offerings in seven key categories: running, basketball, football, men’s training, women’s training, NIKE sportswear, and action sports. It also markets product designed for kids, as well as for other athletic and recreational uses such as baseball, cricket, golf, lacrosse, outdoor activities, football, tennis, volleyball, walking, and wrestling. The company sells a line of performance equipment under the NIKE Brand name, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, golf clubs, and other equipment designed for sports activities. It also sells small amounts of various plastic products to other manufacturers through its wholly-owned subsidiary, NIKE IHM, Inc. Its reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. The company wholly-owned subsidiaries include Converse Inc., which designs, markets and distributes casual footwear, apparel and accessories and Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories.