NIKE, Inc. (NYSE:NKE) today reported fiscal 2018 financial results for its first quarter ended August 31, 2017.
*My Predictions from Before the Reports
Revenues will be up. (Revenues remained flat at 9.1billion which is still an incredible accomplishment see the Outcome section below.)
Futures won’t be reported so the decrease there will be seen in inventories. Where will inventories be? 10%. (Inventories were at 17%. I should have seen this coming since I’ve been reporting that Nike has taken on RTVs and increased inventory to supply retail and DTC efforts.)
I expect revenues to be up around 9.2 billion, margins will decrease because of promo. (Margins dropped considerably, but this was expected. I still thought DTC would increase revenues, but as I stated above 9.1 is actually incredible.)
*The Results from Nike
First Quarter Income Statement Review
• Revenues for NIKE, Inc. were $9.1 billion, flat to prior year on both a reported and currency neutral basis.** My prediction was 9.2 billion. (Not bad at all)
Revenues for the NIKE Brand were $8.6 billion, up 2 percent on a currency-neutral basis driven by growth in Greater China, EMEA and APLA, including growth in Sportswear. My prediction was that revenues would be up.
• Gross margin declined 180 basis points to 43.7 percent due primarily to unfavorable changes in foreign currency exchange rates and, to a lesser extent, a higher mix of off-price sales. My prediction was spot on that margins would be down.
• Inventories for NIKE, Inc. were $5.2 billion, up 6 percent from August 31, 2016, driven by a higher average cost per unit primarily due to product mix and, to a lesser extent, changes in foreign currency exchange rates and growth in NIKE Direct businesses. My prediction here was dead wrong, but I should have gotten this right since I’ve been reporting that Nike is holding more inventory due to DTC.
*The Outcome and My Prediction for the Future
Analysts who are bragging that they were correct in the assertion that adidas took shares away from Nike are overlooking that Nike still grew and beat projections in an extremely tough retail environment. The company has finally completed the transition to DTC as the primary driver of growth and they have made the cuts needed to adjust. Stock market people who are bullish should be; Nike is headed back in the right direction. I fully expect the brand to begin a marketing onslaught to account for the lack of marketing and overproduction needed to build the Consumer Direct Offense.
The brand will be able to focus attention on its NBA and NFL deals, new campaigns for products and the slow introduction of FlyLeather, VaporMax and Zoom X into products over the next year. The company is in a great position as performance will begin to also become more comfortable which will make performance a bit stronger. Nike has already made a concentrated effort to redesign their signature footwear to make it more street friendly and performance ready. The visibility of the brand and an increase in marketing will give them a leg to stand on that adidas simply doesn’t have.
The most important aspect is this: adidas began to take 11% of retail from Nike starting right around this time last year up until this year. With the 11% market share the natural adjustment should have been that Nike should have lost revenue. The exact opposite happened showing that the 11% that Nike “lost” was not “lost”. It shifted. By Nike’s own words the considerable growth shown in the international market and with DTC basically left them in the same spot as last year. and the revenue reflects this at 9.1 billion.
What is lost in this is that this time last year the 9.1 billion had an additional bump from the Olympics and fewer Nike retail outlets and more Futures orders. Quite frankly Nike increased their spend on retail outlets and on e-commerce, decreased dependence on Futures and still remained flat.
If adidas took 11% market share away from the Swoosh why is this the line from last year to this year on revenue?
Revenues $ 9,070 $ 9,061 0%
The panic over Nike is not warranted and it’s officially time that the data being sold by companies gets questioned in greater detail for failing to acknowledge that data from the brand is needed to make more accurate analysis.