Company Update (NYSE:NKE): NIKE, Inc. Shares Tumble 4% on Disappointing Future Orders

Nike Inc (NYSE:NKE) reported fiscal 2017 financial results for its first quarter ended August 31, 2016. Strong global demand drove double-digit currency-neutral revenue growth internationally in the first quarter and six percent revenue growth in North America.

Diluted earnings per share for the quarter were $0.73, up 9 percent driven by strong revenue growth, operating overhead leverage, a lower effective tax rate and a lower average share count partially offset by a gross margin decline and higher demand creation expense in an Olympic quarter.

“Fueled by an incredible summer of sport, NIKE delivered strong global growth—and led the industry through disruptive innovation,” said Mark Parker, Chairman, President and CEO,NIKE, Inc. “Q1 also showed how we’re amplifying every category through sports style innovation, transforming retail by connecting the digital and physical experience and ushering in a new Era of Personalized Performance – through product, consumer connections and our supply chain. NIKE’s strategic investments in these growth opportunities continue to deliver long-term value to our shareholders.”**

First Quarter Income Statement Review

  • Revenues for NIKE, Inc. rose 8 percent to $9.1 billion, up 10 percent on a currency-neutral basis.
    • Revenues for the NIKE Brand were $8.5 billion, up 10 percent on a currency-neutral basis driven by double-digit growth in Greater China,Western Europe, Emerging Markets, Central & Eastern Europe andJapan, including strong growth in Sportswear, Running and the Jordan Brand.
    • Revenues for Converse were $574 million, up 4 percent on a currency-neutral basis, mainly driven by growth in North America which was slightly offset by declines in Europe and Asia Pacific.
  • Gross margin declined 200 basis points to 45.5 percent as higher average selling prices were more than offset by several temporary or discrete items including foreign exchange, a shift of expenses from Operating Overhead to Cost of Goods Sold, a higher off-price mix and the impact of exiting the Golf equipment business.
  • Selling and administrative expense increased 12 percent to $2.9 billion. Demand creation expense was $1.0 billion, up 25 percent, reflecting investments in key sports events. Operating overhead expense increased 6 percent to $1.9 billion, reflecting continued growth in the Direct-to-Consumer (DTC) business, and targeted investments in operational infrastructure and consumer-focused digital capabilities.
  • Other income, net was $62 million, primarily comprised of net foreign currency 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 exchange rates on the translation of foreign currency-denominated profits, increased pretax income by approximately $3 million.
  • The effective tax rate was 2.5 percent, compared to 18.4 percent for the same period last year, primarily due to a one-time benefit related to the resolution with the U.S. Internal Revenue Service of a foreign tax credit matter.
  • Net income increased 6 percent to $1.2 billion as revenue growth and a lower effective tax rate more than offset lower gross margin and higher demand creation expense, while diluted earnings per share increased 9 percent from the prior year to $0.73 reflecting nearly a 3 percent decline in the weighted average diluted common shares outstanding.

August 31, 2016 Balance Sheet Review

  • Inventories for NIKE, Inc. were $4.9 billion, up 11 percent from August 31, 2015, driven by a 3 percent increase in NIKE Brand wholesale unit inventories, increases in average product cost per unit, and growth in the DTC business.
  • Cash and short-term investments were $4.8 billion, $621 million lower than last year as growth in net income and proceeds from the issuance of debt in the second quarter of fiscal 2016 were more than offset by share repurchases, investments in working capital and infrastructure, higher dividends, and a reduction in collateral received from counterparties to foreign currency hedging instruments.

Share Repurchases

During the first quarter, NIKE, Inc. repurchased a total of 19.0 million shares for approximately$1.1 billion as part of the four-year, $12 billion program approved by the Board of Directors inNovember 2015. As of August 31, 2016, a total of 39.0 million shares had been repurchased under this program for approximately $2.2 billion.

Futures Orders

As of August 31, 2016, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from September 2016 through January 2017 totaled $12.3 billion, 5 percent higher than orders reported for the same period last year, and 7 percent higher on a currency-neutral basis. (Original Source)

Shares of Nike are down nearly 4% to $52.90 in after-hours trading Tuesday. NKE has a 1-year high of $68.20 and a 1-year low of $51.48. The stock’s 50-day moving average is $56.72 and its 200-day moving average is $57.15.

On the ratings front, NKE stock has been the subject of a number of recent research reports. In a report released yesterday, J.P. Morgan analyst Matthew Boss maintained a Buy rating on NKE, with a price target of $62, which implies an upside of 14% from current levels. Separately, on the same day, Brean Capital’s Eric Tracy reiterated a Buy rating on the stock and has a price target of $62.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Matthew Boss and Eric Tracy have a total average return of 9.4% and 10.3% respectively. Boss has a success rate of 72% and is ranked #576 out of 4183 analysts, while Tracy has a success rate of 55% and is ranked #279.

Overall, 7 research analysts have assigned a Hold rating and 14 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 $65.08 which is 20% 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.



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