Nike runs strong as Q2 earnings, sales easily top expectations

Nike reported a strong second quarter, fueled by strong sales at home.

The athletic footwear and apparel giant reported net income of $1.33 billion, or $0.85 per share, for the quarter ended Nov. 30, compared with $1.34 billion, or $0.83 per share, for the year-ago period. Analysts were looking for earnings of $0.64 per share.

Revenue rose 17% to $13.32 billion, up from $11.36 billion a year earlier and topping the $12.57 billion analysts had expected.

Nike Direct sales increased 16% for the quarter, to $5.4 billion. Digital sales rose 25%. Revenues in the wholesale segment increased 19%.

"Nike’s results this quarter are a testament to our deep connection with consumers," said John Donahoe, president and CEO, Nike. "Our growth was broad-based and was driven by our expanding digital leadership and brand strength. These results give us confidence in delivering the year as our competitive advantages continue to fuel our momentum."

Inventories were up 43% to $9.3 billion in the quarter versus the year-ago period, driven by an increase in units from lapping prior year supply chain disruption and higher input costs.  But during the earnings call, Donahoe said the company believes the inventory peak “is behind us as actions we’re taking in the marketplace are working.”

Nike’s gross margins decreased 300 basis points to 42.9%, which the company attributed primarily due to higher markdowns to liquidate inventory, particularly in North America; continued unfavorable changes in net foreign currency exchange rates; elevated freight and logistics costs; and increased product input costs.

In addition, overhead costs rose 10% to $3 billion, driven by investments in technology and wage-related expenses.

Nike executives sounded a bullish note on the company’s future prospects.

“Consumer demand for Nike’s portfolio of brands continues to drive strong business momentum in a dynamic environment,” said Matthew Friend, executive VP and CFO. “We remain focused on what we can control and we are on track to deliver on our operational and financial goals, setting the foundation for sustainable, profitable growth.”

Nike which recently debuted a new store concept for its top-selling Jordan brand, ended the second quarter with approximately $6.5 billion in cash and cash equivalents and $8.9 billion in long-term debt.

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