Nike Earnings Outperform in Q2.

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Nike (NYSE :NKE) beat both revenue, and earnings on the back of what many consider an unprecedented campaign. The Colin Kaepernick campaign added fuel to Nike’s quarterly revenue, which rose by 10% coming in at $9.4 billion, and the bottom-line came in 15% higher year over year, at $847 million. Sales also came in stronger on the back of an improved online presence which was a key part of driving Nike’s revenue.

We currently have a price estimate of $80 per share, which is 9.5% higher than the market price. You can use our interactive dashboard Nike Q2 2018 to modify key drivers and visualize the impact on Nike’s price estimate.

With a trade-war in effect between China and the U.S, Nike’s management iterated that tariffs were seen to have little to no effect. With the  majority of the tariffs being born by the producers in China, and a weaker Yuan being positive for revenue. In general, due to the demand-supply dynamic, a weaker Yuan, and a stronger Euro are positive for earnings. As was noticed during the quarter.

Sales in China again drove the revenue with a 26% surge, a large part of this was driven by the Single Day holiday sales which saw a 40% gain year-on-year. Nike’s focus on marketing and online sales, have been the key driver as it looks to outdo its competitors. North American sales benefited from Nike’s online presence, rising 8.5% on a y-o-y basis. With a focus on online sales, gross margins rose by 70 bps.

It should be noted FX headwinds continue to play a part in this quarter. Currency neutral revenue rose by 14%.

Overall the quarter was very positive for Nike. The company has put in the work in the recent years to transform itself and this is now being reflected in the earnings. We expect that Nike as a company will continue to outperform expectations in the coming quarters. With Asia-Pacific being a key driver of sales. As earnings continue to outperform, this will be a key catalyst for the stock.

Nike’s stock has under-performed relative to its peers, who also have seen their stocks rise on the back of improved results.

 

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