Nike tanks after earnings as gross margins miss expectations (NKE)

pulse

September 25, 2018 8:56 PM

Analysts are reading the earnings release and listening to the call for details on how several notable events impacted Nike's third-quarter performance, including the FIFA World Cup, investments in online stores, and the controversial Colin Kaepernick ad.

Nike's ad featuring Colin Kaepernick recently sparked controversy.

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Watch Nike trade in real time here

Nike on Tuesday reported quarterly earnings that topped Wall Street's forecasts as its efforts to sell more products directly to consumers paid off.

The apparel giant posted $0.67 in adjusted earnings per share on $9.95 billion in revenues. Analysts had forecast $0.63 in adjusted EPS and revenues of $9.94 billion, according to estimates compiled by Bloomberg.

However, Nike's gross margin was weaker than analysts had forecast, sending shares down by as much as 4% in after-hours trading. Gross margin increased by 60 basis points to 44.2%, thanks to higher average selling prices. But this was shy of the expectation for 44.3%. Sales in China and Latin America were also weaker than forecast.

Sales increased across all regions and brand categories except equipment.

Nike reported a second-straight quarter of positive footwear-sales growth in North America with a 5% increase. It competes against Adidas, Under Armour, and others in this category and posted negative growth from May 2017 through the second quarter.

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Analysts were interested in how several notable events impacted Nike's third-quarter performance, including the FIFA World Cup, investments in online stores, and the controversial Colin Kaepernick ad.

Nike said it spent $964 million — up 13% from a year ago — on so-called demand creation to promote its brand. The expenses were driven by "sports marketing investments, brand campaigns and key sports moments."

During the last earnings call, executives emphasized the investments they were making in digital, including direct-to-consumer online sales and plans to create a store with inventory influenced by what consumers were buying from nearby zip codes.

Those efforts paid off, according to Parker.

Nike's stock has been a highflier this year, gaining 36% through Tuesday's close and far outpacing the broader market.

It was also popular with millennial investors, who snapped up the stock amid the controversy surrounding the Kaepernick ad, according to data from Robinhood.

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