Nike’s fiscal fourth quarter was great for revenue – but currency effects hit earnings
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Nike’s fiscal fourth quarter was great for revenue – but currency effects hit earnings

Footwear specialist athleisure giant Nike reported fourth quarter earnings at the end of June, painting a mixed picture for analysts. On the one hand, the business looked strong – higher revenues and inward investment into the types of architecture that will let it sell directly to consumers position it well for further growth. On the other hand, earnings failed to meet expectations due to a hit from currency effects. The miss sent the share price down on the day, but it’s powered back up since.

Nike’s share price has appreciated by 18% so far this year

Nike July 8

Source: Yahoo Finance

Nike beat the Street’s expectations on revenue, which rose by 4% year on year to just over $10 billion. Breaking that down, Nike’s own brand outperformed while Converse saw its revenues stay flat against the previous year. However, where the company missed estimates was on earnings, delivering diluted earnings of 62c per share. That didn’t match up with analysts’ hopes for diluted earnings of 69c per share.

Explaining that shortfall away, Nike said there were two main culprits: first, currency effects. And second (and more importantly, from an underlying business perspective) significant spending on its direct to consumer division.

That division is one of Nike’s grand strategies for further growth. Under the traditional business model, Nike would supply middle-men (sporting stores, footwear stores, and various other retail brands) with its products, thereby having to share the income generated by sales. However, emboldened by modern technology, the company now thinks it can cut these people out, retaining more profit for itself. Undoubtedly, if this strategy works going forward, then it is worth a hit in earnings today.

The good news for investors is that it seems to be working. In the full fiscal year, Nike said revenues from this business jumped by an impressive 35%. For the purposes of comparison, sales to wholesale customers rose by a positive-but-nowhere-near-as-good 10%.

Speaking to the importance of digital channels and a double-digit rise in its women’s business, Nike CEO Mark Parker said: “The major unlock we see over the next several years is the opportunity that digital provides. Distribution is often one of our biggest barriers, and we continue to find that when we present product in a more future-forward way, we’re able to take the female consumer some place new, and they’re responding.”

Disclosure

Dominion holds Nike in its Global Trends Luxury Fund.


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