Nike sprints to impressive Q3 despite strong dollar, future orders impress, running-inspired product leads

Nike looked to have ticked almost all the right product boxes last quarter as the mighty US athletic sportswear brand announced late Thursday it had sprinted through a near-perfect Q3.

Near perfect? Well, nothing’s ever completely perfect. Yes, those all-important future orders continue to look strong even up against currency shifts and tough year-ago comparisons. Yes, quarterly profits beat analysts’ estimates on strong demand for higher margin footwear and apparel.

But here comes the ‘but’. Sales fell short of analysts’ heady expectations and the results also came with a warning that the stronger dollar would take a toll on the current quarter and beyond. Not that the market seemed to mind too much and its vote of confidence sent Nike shares up 4.5% to $102.75 in heavy after-hours trading Thursday.

So how did the current crop of figures measure up?

Earnings rose 17% to $791m/89 cents per share for the quarter ended February 28. Analysts had expected a profit of 84 cents. That followed a 25% EPS gain in Q2 and marked the third straight double-digit gain.

Total revenue increased 7% (up 13% currency neutral) to $7.46bn, short of analysts’ $7.61bn view.

Sales of core footwear rose 8% while apparel sales rose 3%. Currency neutral, footwear sales rose 14% and apparel sales lifted 9%. Nike brand sales jumped 11% to $6.9bn, currency neutral, driven by growth in every geography and most key categories. Converse brand sales, meanwhile, leapt 33% to $538m.

Demand for its celebrity-endorsed Jordan, LeBron, Kobe and KD basketball shoe brands continue to be strong in the US while its running shoe brands, including Free 5.0, Roshe Run, Huarache, and Max Air, have also been performing well.

Geographically, North America revenues rose 6% in the quarter, while sales in western Europe and China showed double-digit growth.

Gross margins rose to 45.9% from 44.5% a year ago, benefitting from a continued shift in mix to higher margin products, partially offset by higher product input and warehousing costs.

“Our strong third quarter results show that our growth strategies are working, even under challenging macroeconomic conditions,” said CEO Mark Parker and who could disagree with him, even with the slight wobble around currency issues.

Footwear and apparel orders scheduled for delivery in the current March-July period jumped 11% globally on a currency neutral basis. Analysts had expected a 9.9% rise. In real terms in was more like a 2% rise, matching Q2.

Excluding currency swings, Nike brand futures orders in North America rose 15%, by 23% in Greater China, up 21% in Central and Eastern Europe and 13% ahead in Japan. But they fell 6% in emerging markets.

Overall, orders would have been even higher if the results were not compared to the strong growth last year due to the football (soccer) World Cup in Brazil, brand president Trevor Edwards said.

Nike also said it expects Q4 currency neutral sales growth to be in the “low double-digits”. But accounting for the stronger dollar, the growth is expected fall by around eight to nine percentage points.

That dollar strength will also hurt the company’s revenue, gross margin and profit next year, CFO Don Blair said on the call.

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