Nike delivered a strong third quarter for the three-month period ended Feb. 28, particularly in terms of sales growth in Europe and China. On a currency-neutral basis, the Nike brand's sales went up by 12 percent in Europe, the Middle East and Africa (EMEA) and by 24 percent in Greater China. They rose by 7 percent in North America and by 14 percent in the rest of Asia-Pacific and in Latin America, leading to an overall increase of 12 percent in constant currencies for the quarter.
The overall strong sales performance, which was led by sportswear and the Jordan brand, was better than that of the Adidas Group, which reported its latest results eight days earlier (see the article below). However, the growth was more muted than expected in the Nike brand's home market, where analysts had expected an increase of around 10 percent, considering also Adidas' recent supply chain problems in the region. Investors reacted by sending Nike's share price down by 4 percent.
Nike had previously mentioned plans to be more selective in the choice of its wholesale partners in the U.S., while developing the direct-to-consumer channel strongly as part of its Consumer Offense initiative. In a conference call with the analysts, Nike indicated that it continued to grow at the wholesale level and said that it was testing new services and concepts with key retail partners such as Foot Locker and Dick's Sporting Goods.
Similarly with Adidas, Nike reported increases in digital sales of 30 percent in dollars and 36 percent in constant currencies, adding that they had reached the €1 billion level for the first time ever in a quarter.
In reported dollars, the Nike brand's total turnover grew by 7.7 percent to $9,148 million in the quarter. Conversely, sales declined by 4.1 percent to $463 million at Converse, which has just launched its new website, as double-digit growth in digital and in China was more than offset by declines in the U.S. and Europe. Across the Nike group, revenues went up by 7.0 percent to $9,611 million, with growth of 11 percent in local currencies.
The gross margin improved by 1.3 percentage points to 45.1 percent for the quarter, thanks in part to higher average selling prices, partially offset by higher product costs. However, operating expenses grew by 12 percent to $3.15 billion, with overhead costs rising by 16.9 percent to $2.23 billion, driven by higher wages and the company's digital transformation initiatives. Spending on demand creation remained nearly flat at $865 million.
As a result, the pre-tax profit rose by only 11.4 percent to $1,291 million and the group posted net income of $1,101 million for the period, which compared with a net loss of $921 million in the year-ago period because of a $2 billion charge related to the U.S. tax reform. Operating margins grew the most in EMEA and Greater China, reaching ratios of 22.1 percent and 40.2 percent, respectively (see the chart in this issue).