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Nike pops on earnings and revenue beat; North America returns to growth

Global sneaker giant Nike (NKE) reported above consensus earnings and revenue numbers for the fourth quarter, surpassing the management’s expectation of high single-digit revenue growth it cited in last quarter’s earnings call. The sales growth was driven by the double-digit revenue increase in the company’s international markets and North America’s return to growth in this quarter. North America was reporting negative growth in the last three quarters.

Revenue increased 13% to $9.8 billion, while earnings per share soared 15% to $0.69. The earnings growth was helped by strong revenue growth, margin expansions, reduced tax rate, offset by higher expense.

Nike fourth quarter 2018 earnings
Nike Q4 2018 Earnings Infographic

“Our new innovation is winning with consumers, driving significant momentum in our international geographies and a return to growth in North America,” said Mark Parker, CEO.

After eight consecutive quarters of gross margin declines, the company reported a 60 basis point increase in gross margin coming in at 44.7%, driven by higher average selling prices and helped by margin expansion in the company’s NIKE Direct initiative. Nike’s gross margin decline has been a talking point in the past among investors, but with this turnaround, investors could bet their bucks more on the stock.

On a regional basis, investors had all their eyes on North America, which has been reporting negative growth over the last three quarters. But contrary to the trend and exceeding management’s expectation, which had warned flat revenues in the region and was expecting to return to growth in the first half of 2019, Nike posted a 3% increase in sales in North America.

Outside the US, the company reported a double-digit revenue increase in all the regions, with China posting the highest year-over-year growth of 35% at $1.46 billion. However, the increased reliance of the company in Chinese markets could post a threat as the US President intensified a trade war with the Chinese economy. Europe, Middle East and Africa, and Asia Pacific and Latin America regions also posted a double-digit increase in sales with both regions growing 24% and 12%, respectively.

Nike’s board of directors announced a new four-year, $15 billion share repurchase program of its Class B Common Stock and expects the current program to end in fiscal 2019. The new program is anticipated to commence upon the completion of the previous $12 billion program.

Nike stock has shown a consistent uptrend in the last one year jumping 25% while increasing 13% since the beginning of the year. Post the earnings release, the stock jumped more than 5% in after-hours trading.

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