NIKE REPORTS FISCAL Q1 ’18 REVENUES FLAT YOY, NET INCOME DOWN 24%
Nike (NKE) reported fiscal Q1 ’18 revenues remained flat YOY ($9.07 billion), with net income declining 24% to $950 million ($.57/share); attributing the loss in profits to gross margin decline (180 basis points to 43.7%) and a higher effective tax rate. The company posted strong revenue growth internationally (particularly in China, up 9%), but a 3% decline in the North American market weighed down the overall results. NKE launched its “Consumer Direct Offense” strategy during the quarter, designed to increase higher margin DTC sales and plans to spend the balance of fiscal ‘18 focused on global growth. An investor day is scheduled for October where the company will expand on its turnaround plan and partnership with Amazon (AMZN).
Howie Long-Short: For the first time, NKE chose not to report “future orders” (a metric beloved by investors). Future orders are a critical metric that measures wholesale demand. Nike argues that the measure no longer matters as the company is focused on building its retail business. Website revenues did grow 19% YOY and retail locations reported same store sales were up 5% over the same time, but retail still only makes up 28% of company revenues. Perhaps it isn’t coincidental that the decision came as orders weakened.
Fan Marino: Nike Elite Youth Basketball League, the company’s grassroots basketball division, has been served by the FBI with a subpoena as part of its investigation in to corruption within NCAA basketball. While the EYBL was not named in the case, Merl Code, who ran the division prior to leaving for Adidas (ADDYY) was. 3 of the 4 schools named thus far (USC, Arizona & Oklahoma State) are Nike schools, so I had been waiting for this shoe to drop. The 4th school, Auburn, has a contract with Under Armour (UAA). Now, it’s only a matter of time until the investigation ensnares them too.