Nike Q2 Earnings: Shares Up As Revenues And Earnings Beat Consensus Estimates

Nike (NYSE:NKE) posted a better-than-expected quarter, this time around beating consensus estimates in both revenues and earnings. Revenues rose 6% year over year on the back of a strong performance globally, both in footwear and apparel. The company’s shares rallied up almost 5% after the call. However, the gains were trimmed down to just about 2% after management announced that future orders grew by only 2% on a constant currency basis. This also includes a contraction of close to 4% in North America.

The company has recently been struggling with increased competition from a resurgent Adidas and has been seeing pressure from Under Armour in its basketball division in North America. This has affected Nike’s sale growth over the last few quarters. That said, one cannot take away from the fact that Nike has surpassed expectations at a time when competition seems to weigh it down.

The management expects full year growth to be in the high single digit range, hampered partially by FX headwinds. Q3 revenues are expected to grow in the mid single digit range.

North American Growth Was Led by DTC

Revenues in North America, which accounts for roughly half of the total revenues, grew by 3% year-over-year. In Q2, growth in the region was propelled by DTC (Direct-To-Consumer), where the company experienced a strong start to the holiday season over the Black Friday weekend. In comparison to last year, the company witnessed double-digit traffic increases, higher conversion rates and higher dollars per transaction across brick and mortar stores and nike.com.

Furthermore, Nike has invested heavily in reinventing the retail experience and their new concept stores are testament to this fact. Within the quarter, the sportswear giant opened a massive 55,000 square feet store in New York City’s prime Soho district. The store has generated considerable buzz and has led to immense traffic. The store is a powerful look at the future of retailing. It allows consumers to get product trials with experts, elevated personalized experiences and heightened member engagement, all while seamlessly combining digital and physical retailing.

Nike is opening another such store on Fifth Ave, and it promises to be even bigger and better. Both these moves are bound to help Nike’s brand awareness and brick-and-mortar traffic. The opening of these stores is part of the company’s strategy to shift its focus on DTC.

Future Orders Continue to Suffer

Nike’s future orders have come in lower than expected for the fourth quarter in a row. This quarter also witnessed the lowest future orders in the last six quarters. Future orders are a key metric used to gauge sales in the coming quarters. And it is directly indicative of the demand for Nike products.

Last quarter, Nike had mentioned that it would no longer provide this figure in its earnings releases. This is primarily because it feels that over the recent quarters, the focus has been to sell to the web and in its branded stores, making the metric less relevant than a few years ago. That advisory didn’t stop investors from reacting to its shortfall, which analysts had expected to increase 5.2% on a currency neutral basis, according to a FactSet.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research