Nike Inc (NYSE:NKE) reported financial results for its fiscal 2017 third quarter ended February 28, 2017. Consumer demand in all geographies drove revenue growth across the NIKE Brand portfolio. Diluted earnings per share were up 24 percent and grew faster than revenue, primarily due to selling and administrative expense leverage, higher other income (net), a lower effective tax rate and a lower average share count.
“The power of NIKE’s diverse, global portfolio delivered another solid quarter of growth and profitability,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “To expand our leadership and ignite NIKE’s next phase of growth, we’re delivering a relentless flow of innovation through performance and style, increasing speed throughout the business and creating more direct connections with consumers leveraging digital and membership.”**
Third Quarter Income Statement Review
- Revenues for NIKE, Inc. increased 5 percent to $8.4 billion, up 7 percent on a currency-neutral basis.
- Revenues for the NIKE Brand were $7.9 billion, up 7 percent on a currency-neutral basis, driven by double-digit growth in Western Europe, Greater China and the Emerging Markets as well as the Sportswear and Jordan Brand categories.
- Revenues for Converse were $498 million, up 3 percent on a currency-neutral basis, driven by growth in North America.
- Gross margin contracted 140 basis points to 44.5 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 decreased 3 percent to $2.5 billion. Demand creation expense was $749 million, down 7 percent as fiscal 2017 spend was weighted towards the first six months due to significant investments around the Olympics and the European Championships. Operating overhead expense decreased 1 percent to $1.7 billion, as continued investments in Direct-to-Consumer (DTC) were offset by lower bad debt expense compared to the prior year and lower administrative costs as Edit-to-Amplify initiatives are driving productivity in core operational spending.
- Other income, net was $88 million comprised primarily of net foreign currency exchange gains, and to a lesser extent, non-operating items.
- The effective tax rate was 13.8 percent, compared to 16.3 percent for the same period last year, primarily due to a reduction in tax reserves and an increase in the mix of earnings from operations outside of the U.S., which are generally subject to a lower tax rate.
- Net income increased 20 percent to $1.1 billion and diluted earnings per share increased 24 percent to $0.68 as revenue growth, selling and administrative expense leverage, higher other income (net), a lower tax rate and a three percent decline in the weighted average diluted common shares outstanding more than offset lower gross margin.
February 28, 2017 Balance Sheet Review
- Inventories for NIKE, Inc. were $4.9 billion, up 7 percent compared to the prior year as a 3 percent decrease in NIKE Brand wholesale unit inventories was offset by increases in average product costs per unit and higher inventories associated with growth in DTC.
- Cash and short-term investments were $6.2 billion, $1.1 billion higher than the prior year as growth in net income and proceeds from the issuance of debt in the second quarter of fiscal 2017 as well as proceeds from employee exercises of stock options more than offset share repurchases, higher dividends and investments in infrastructure.
During the third quarter, NIKE, Inc. repurchased a total of 8.9 million shares for approximately $475 million as part of the four-year, $12 billion program approved by the Board of Directors in November 2015. As of February 28, 2017, a total of 64.9 million shares had been repurchased under this program for approximately $3.6 billion.
Shares of Nike are currently trading at $57.20, up $0.81 or -1.40%. NKE has a 1-year high of $65.44 and a 1-year low of $49.01. The stock’s 50-day moving average is $56.03 and its 200-day moving average is $53.33.
On the ratings front, Nike has been the subject of a number of recent research reports. In a report released today, J.P. Morgan analyst Matthew Boss maintained a Buy rating on NKE, with a price target of $61, which represents a slight upside potential from current levels. Separately, yesterday, Baird’s Jonathan Komp maintained a Buy rating on the stock and has a price target of $67.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Matthew Boss and Jonathan Komp have a yearly average return of 8.9% and 16.6% respectively. Boss has a success rate of 71% and is ranked #808 out of 4564 analysts, while Komp has a success rate of 66% and is ranked #592.
Sentiment on the street is mostly bullish on NKE stock. Out of 17 analysts who cover the stock, 12 suggest a Buy rating , 4 suggest a Hold and one recommends to Sell the stock. The 12-month average price target assigned to the stock is $65, which represents a potential upside of 11% from where the stock is currently trading.
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.