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Nike hails China sales “amazing” thanks to demand for athleisure

Nike-athleisure

Positive news out of China for one major brand at least. Nike’s sales rose a better-than-expected 5% in Q1, boosted by the strength in its China business, up almost by a third and described by Nike as “amazing”. Sales of higher margin products and the relentless march of athleisure were spotlighted.

Its shares rose 7.8% in after-hours trading as both earnings and revenue surpassed analysts’ expectations – Goldman Sachs describing it as a “blowout” Q1. More importantly, future orders also rose strongly.

OK, let’s deal with those first. Worldwide orders for the current September-January period rose 9% year-on-year. Ok, that was below the 11% increase Nike reported for the year-earlier period but markedly higher than the 2% growth from the last quarter.

Excluding currency fluctuations, future orders rose 17% from the year-earlier period, above the 13% growth in the last quarter.

Future orders also jumped 22% in China, or by 27% currency neutral.

Profit for the opening quarter lifted 23% to $1.18bn/$1.34 a share, from $962m/$1.09 a share a year earlier. Analysts had expected $1.19. Its effective tax rate in Q1 was 18.4%, compared with 21.7% a year earlier.

Overall, revenue rose 5.4% to $8.41bn, also beating analysts’ view of $8.22bn. Nike brand sales grew 6.4% to $7.9bn, or up 15% currency neutral.

Revenue from North America, Nike’s largest market, jumped 8%. Nike brand sales grew 9% excluding currency impacts. Footwear sales, the largest source of revenue, increased 9%.

Elsewhere, excluding currency impacts, Nike brand sales rose 14% in Western Europe, 26% in Central Europe and 30% in Greater China.

Gross margin rose to 47.5% from 46.6%, down to higher average selling prices and continued growth in the more profitable direct-to-consumer business.

In the latest period, Nike also reduced its marketing spend by 7.2% to $832m, skewed last year by promotions for the football (soccer) World Cup.

“Fiscal 2016 is off to a great start,” said CEO Mark Parker. “Our relentless pace of growth is driven by our proven strategy of putting the consumer first, obsessing innovation in everything we do and leveraging our powerful portfolio. We’re well-positioned to continue to deliver long term growth that is both sustainable and profitable.”

CFO Andy Campion added: “While we are very mindful of the macroeconomic volatility in China, our brand has never been stronger and our marketplace has never been more healthy.”

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