The athletic apparel, footwear and accessories retailer, NIKE Inc. NKE concluded fiscal 2015 on a high note as both fourth quarter and fiscal year results gained from the company’s ability to cater to customer needs with innovative products. Fueled by this, shares of the company rose nearly 4% in yesterday’s after-hours trading session.
The company’s quarterly earnings of 98 cents per share surged 26% year over year and surpassed the Zacks Consensus Estimate of 84 cents. The bottom line growth was driven by an impressive top line, gross margin improvement, lower tax rate and reduced share count, partly offset by a rise in selling, general and administrative (SG&A) expenses.
Nike Inc. – Earnings Surprise | FindTheCompany
Delving Deeper
Net sales of this sportswear retailer advanced about 5% to $7,779 million in the fourth quarter and beat the Zacks Consensus Estimate of $7,746 million. On a currency neutral basis, sales rose 13%.
The company’s NIKE Brand recorded 13% revenue growth on a currency neutral basis, to $7.4 billion. The segment registered growth across all regions and major product categories, except Emerging Markets and Global Football.
Moreover, the NIKE Brand’s direct-to-consumer revenues ascended 27% in the quarter, backed by significantly higher nike.com revenues, comparable-store sales growth and addition of new stores.
Further, revenues at the company’s Converse subsidiary rose 14% to $435 million on a currency neutral basis. The improvement was driven by strong growth in the U.S. coupled with a market shift to direct distribution in AGS (Austria, Germany and Switzerland).
Nike’s global future orders, slated for delivery from Jun 2015 through Nov 2015, climbed 2% year over year to $13.5 billion. On a currency neutral basis, future orders increased 13%, reflecting rising demand for the company’s products.
Gross profit improved 6% to $3,593 million with gross margin increasing 120 basis points (bps) to 46%. The rise in gross margin was aided by increased average selling prices and persistent growth in higher margin DTC business, partly offset by greater product input and logistics expenses.
SG&A expenses escalated about 6% to $2,595 million on account of higher operating overhead costs, offset by decline in demand creation expenses.
Demand creation expense declined 7% as costs related to the World Cup event last year were absent this year. On the other hand, operating overhead costs increased 13% on account of the expansion of direct-to-consumer business and investments made toward enhancing digital capacities and operational infrastructure.
Fiscal 2015 Performance: A Synopsis
Earnings of the athletic apparel and shoe powerhouse for fiscal 2015 came in at $3.70 per share which was 25% higher than the fiscal 2014 earnings of $2.97 and ahead of the Zacks Consensus Estimate of $3.56. The company’s top line surged 10% to $30,601 million in fiscal 2015. On a currency neutral basis, sales jumped 14% and also came ahead of the Zacks Consensus estimate of $30,582 million.
Balance Sheet
Nike ended fiscal 2015 with cash and short-term investments of $5,924 million, compared with $5,142 million a year ago. Inventories grew about 10% to $4,337 million.
Nike’s long-term debt (excluding current maturities) stood at $1,079 million, compared with $1,199 million at the end of fiscal 2014. Shareholders’ equity was $12,707 million as of May 31, 2015, as against $10,824 million as of May 31, 2014.
Share Repurchase
During the fourth quarter, Nike bought back 6.8 million shares for $678 million. This buyback was part of the four-year authorization worth $8 billion, approved by the company’s board in Sep 2012. Throughout fiscal 2015, the company bought back 80.9 million shares under the program for nearly $6 billion or $73.55 per share.
Conclusion & Outlook
Nike’s solid quarterly performance reflects its focus on adopting innovations to keep up with customer demand. In spite of foreign currency headwinds, the company’s results remain impressive, backed by its constant focus on exploiting growth opportunities along with efficient risk management. Going forward, Nike plans to follow these standards in order to enhance shareholder value in the long run.
Moreover, the company expects the supply chain disruptions in North America due to the West Coast port unrest to normalize in the first half of fiscal 2016. It expects elevated inventory levels to persist over the next few quarters as the company continually tries to rebalance supply and demand in the market.
Management remains optimistic about fiscal 2016 as it expects the strong momentum witnessed in fiscal 2015 to continue. Nike anticipates revenue growth in the mid-single-digit range for fiscal 2016, while constant dollar revenues are expected to increase in the low-double-digits range. Moreover, revenue growth for the first quarter of fiscal 2016 is projected in the low single-digit range.
Nike anticipates gross margin for the first quarter and fiscal 2016 to expand about 50 bps, backed by higher average selling prices and expansion of its DTC business coupled with some gains from lower oil prices. This is expected to be slightly offset by ongoing labor cost inflation, elevated prices of some raw materials and currency headwinds.
Zacks Rank
Nike currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the apparel-shoe industry include Skechers USA Inc. SKX, Caleres Inc. CAL and Carter’s Inc. CRI. While Skechers sports a Zacks Rank #1 (Strong Buy), Caleres and Carter’s carry a Zacks Rank #2 (Buy).
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