Nike's fourth-quarter earnings miss Wall Street's expectations

Updated Thu, Jun 27, 2019, 2:19 PM

The Beaverton, Oregon-based company posted sales of $10.18 billion for the quarter ending in May, slightly exceeding estimates for $10.16 billion, according to Bloomberg data. However, adjusted earnings per share of 62 cents were 10% below the company’s EPS in the year-ago quarter, and below consensus expectations for 66 cents a share.

Wall Street had anticipated a year-over-year decline in quarterly earnings as Nike lapped last year’s bottom-line boosting events, including FIFA Men’s World Cup merchandise sales and the launch of new Air Max 270 and Epic React shoes. Nike, however, performed even more weakly than expected on EPS, attributing this in part to greater marketing expenses and a higher tax rate.

The company held up more strongly on the top line, especially in its closely watched North American and Greater China segments. Nike’s North American sales grew 7.5% over last year to $4.17 billion during the quarter. This was better than the 3% pace of growth the company posted in the region during the year-ago period. Investors were monitoring sales expansion in Nike’s North American market, its most important geographic segment, after regional sales disappointed during the February quarter.

Over the past several months, U.S. retailers highlighted demand for Nike products in their own quarterly reports, presaging strong sales results for the athletic-wear maker. Dick’s Sporting Goods (DKS) CEO Edward Stack said during a call with investors that he was “very pleased” with the company’s Nike business, while Kohl’s (KSS) management cited positive growth for Nike, Under Armour (UAA) and Adidas (ADS.DE) products during its April quarter.

Nike on Thursday reported a 10% rise in Nike Brand for the fourth quarter, which the company attributed to growth across Nike Direct and wholesale, as well as its sportswear, Jordan and basketball categories. Revenue from the company’s Converse brand was flat against last year.

‘A brand of China, for China’

China continued to be a major contributor to Nike’s total sales. Excluding currency changes, revenue from China grew 22% over last year to $1.7 billion, comprising 16.7% of fourth-quarter revenue. Nike’s sales in Greater China have grown by double digits percentages on a currency neutral basis for the past 20 consecutive quarters.

As trade tensions with China have escalated, investors have questioned the future prospects for retail companies, including Nike, with sales and supply chain exposure to the region.

However, Nike CEO Mark Parker said during a call with investors Thursday that he was confident the company would continue to grow its business in China, adding that Nike is set to unveil a women’s apparel line for Asian markets in 2019. It also plans to launch its app in China in the first half of 2020.

“We are, and remain, a brand of China, for China,” Parker said.

When asked whether U.S.-China trade relations or an economic slowdown in China were affecting Nike, management noted, “We have not seen any impact on our business to date, and we continue to see strong momentum as we enter fiscal year 2020.”

The logo of Dow Jones Industrial Average stock market index listed company Nike (NKE) is seen in Los Angeles, California, United States, April 12, 2016. REUTERS/Lucy Nicholson

Despite ongoing uncertainties, Nike is “well-positioned to weather any potential tariffs,” Susquehanna analyst Sam Poser wrote in a note ahead of fourth-quarter earnings results.

“Large, geographically diversified companies are best positioned to weather the storm from any additional tariffs imposed on Chinese imports,” Poser said. About 40% of Nike’s annual revenue came from regions aside from the U.S. and Greater China in both the 2018 and 2019 fiscal years.

Poser estimated that Nike manufactured about 26% of both its footwear and apparel in China in 2018, but that less than 10% of goods manufactured in the country were then imported to the U.S. And while the majority of Nike’s sports equipment products were likely made in China last year, these goods comprised less than 5% of Nike’s total North American revenue in the 2018 fiscal year, he added.

“Exposure to potential tariffs is limited,” Poser said.

Shares of Nike have risen 12.6% for the year-to-date through Thursday’s close, underperforming against the S&P 500’s 16.7% advance in 2019.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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