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Nike stock falls on cost concerns, despite Q1 earnings beat

Nike’s (NKE) North America recovery gathered steam in the first quarter when the company’s earnings jumped on strong revenue growth. Meanwhile, the stock dropped sharply in the extended trading hours Tuesday as investors reacted negatively to the higher costs and squeeze on margin.

The sneaker maker, currently facing intense scrutiny over its controversial advertisement featuring Colin Kaepernick, said first-quarter earnings rose 18% to 67 cents per share, aided by a 10% increase in revenue to $9.9 billion. The results exceeded Wall Street projections. Revenues of the NIKE brand gained 10% and those of Converse moved up 7% during the quarter.

Nike Q1 earnings rise 18% on higher revenues
Nike Q1 2019 Earnings Infographic

North America, a key market for the company, recorded a 6% sales growth, while sales in Europe, the Middle East, and Africa advanced 9%. Also contributing to the overall top-line growth was China, where sales witnessed a 20% increase.

Gross margin increased 50 basis points to 44.2% helped by favorable pricing, which was partially offset by higher product costs.

“NIKE’s Consumer Direct Offense, combined with our deep line up of innovation, is driving strong momentum and balanced growth across our entire business. Our expanded digital capabilities are accelerating our complete portfolio and creating value across all dimensions as we connect with and serve consumers,” said CEO Mark Parker.

Gross margin increased helped by favorable pricing, which was partially offset by higher product costs

In May, Parker had come under immense pressure over a sexual harassment scandal involving some senior executives. Several executives were forced to leave the company after it carried out an investigation into the matter. Trevor Edwards, the former president who was a prospective successor to Parker, was among those who stepped down.

Also Read:  ADP Q4 earnings fall 59% hurt by pre-tax charges

Also see: Nike Q1 2019 earnings transcript 

On the other hand, Nike remained resilient in the face of the controversy triggered by the ad campaign involving Kaepernick earlier this month. Though the issue had triggered a selloff initially, the stock bounced backed later.

Over the past twelve months, Nike shares gained around 64% and are currently hovering near the $85-mark. The stock closed Tuesday’s regular session higher but pared the gains in the after-hours trading.

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

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