There's still no end in sight to the latest growth spurt at the Nike group, as its sales advanced by 4 percent to $7,686 million and by 12 percent in constant currencies for the quarter until the end of November. Even more impressively, futures orders for the Nike brand were up by 15 percent in dollars and by 20 percent in constant currencies at the end of the quarter, as the company eagerly prepares for the European football championships and the Rio Olympics.

Nike delivered an increase of 0.5 percentage points to 45.6 percent for its gross margin. With flat marketing costs but more spending on own retail facilities, earnings before interest and tax (Ebit) moved up by 10 percent to $975 million and the company ended the three months with net income of $785 million, up by 20 percent.

The sales increase was broad-based for the Nike brand, which saw its turnover rise by 5 percent to €7,317 million, an increase of 13 percent in constant currencies. The brand's sales advanced at double-digit rate in constant currencies in all regions and nearly all key categories. This excludes basketball, for which the Nike brand's sales expanded at a mid-single-digit rate in constant currencies, while the Jordan brand expanded at strong double-digit rates.

The Nike brand's own retail sales surged by 26 percent, with comparable store sales growth of 13 percent, new store openings and a jump of 49 percent in online sales. Canada, Switzerland and Norway were added to the group's list of online sales markets, with Mexico, Turkey and Chile to follow.

The Nike brand's rise was most impressive in Greater China, where its sales advanced by 24 percent to $938 million. This was an increase of 28 percent in yuan, driven by sportswear, running and Nike-branded basketball sales. After two years of adjustments, Nike has clearly hit its stride in the Chinese market, where it points to strong sell-through and clean inventories. Own retail sales soared by 51 percent and futures were up by another 34 percent in yuan at the end of the quarter.

Nike Consolidated Income Statement
(Million $, Quarter ended November 30)

 

2015

2014

%
Change

REVENUES

7 686

7 380

4,1

Cost of Sales

4 185

4 053

3,3

Gross Profit

3 501

3 327

5,2

Gross Margin

45,6%

45,1%

0.5 pp

Demand Creation

769

766

0,4

Operating Overhead

1 791

1 672

7,1

Net Interest Expense (Income)

5

9

-44,4

Pre-Tax Income

970

878

10,5

Tax

185

223

-17,0

NET INCOME

785

655

19,8

Diluted $/Share

0,90

0,74

21,6

Western Europe delivered another buoyant quarter, with sales up by 12 percent in constant currencies for the Nike brand, although they slipped by 1 percent in reported terms to $1,299 million. This is another region where Nike is vastly outperforming the market, with another increase of 25 percent in futures at the end of the period. Sportswear and football were among the strongest categories.

Nike executives said in a conference call that demand in China and Western Europe is supported by what the group describes as its category offense strategy, to more thoroughly cover all parts of the market. The company pointed to targeted programs with retailers such as JD Sports, Foot Locker and Intersport in Western Europe, where Nike's own retail sales also advanced by 26 percent.

When it comes to Central and Eastern Europe, Greece is the only country where the Nike brand's sales declined, while others yielded double-digit rate increases. The Nike brand's turnover in the entire region was down by 6 percent to $326 million, but without exchange rate changes it increased by 15 percent and futures were up by 13 percent in constant currencies.

Sales continued to advance briskly in North America, up by 9 percent to $3,547 million, despite a sales decline of 12 percent in constant currencies for equipment. Own retail sales in North America amplified by 17 percent, with increases in comparable store sales and online sales.

The brand's gross margin in North America was affected by clearance activities, which is to continue in the coming months with extra activity at Nike outlet stores. But Nike pointed out that most of it was residual inventory due to delayed deliveries after the port congestion earlier this year. Inventories are to normalize over the rest of the fiscal year. Futures for North America were up by another 14 percent.

The emerging markets region delivered a sales increase of 11 percent in constant currencies but that amounted to a decline of 8 percent in dollars to $984 million. The Nike brand's sales were robust in South Korea and in Mexico, where it has been reorganizing its business in the last year. Such efforts have yet to fully pay off in Brazil, where sales were down by 6 percent, but Nike is apparently gaining market share. Futures for the region are up by 14 percent in constant currencies.

NIKE Future Orders
Delivery from Dec. 2015 to April 2016 (%)

Geography

Reported
Future
Orders

Excluding
Currency
Changes

North America

14

14

Western Europe

17

25

Central and Eastern Europe

3

13

Greater China

31

34

Japan

26

32

Emerging Markets

0

14

Total

15

20

Then again, the Converse brand's sales shrank by 8 percent to $398 million in reported terms and by 5 percent in constant currencies. The Nike group said that strong expansion in North America could not make up for a decline in Europe, with particular weakness in the U.K. Nike intends to support Converse more strongly, by sharing technology and global infrastructure.

Earnings before interest and tax soared by 17 percent to $1,255 million for the Nike brand, with double-digit rises in all regions other than emerging markets, where they inched up by 2 percent. The increases reached 27 percent in China, 12 percent in North America and 18 percent in Western Europe. Ebit even surged by 62 percent in Japan, where the Nike brand's sales were up by 17 percent and futures by 32 percent in yen. The Converse brand's Ebit dropped by 3 percent to $85 million for the quarter.

Nike Regional Sales & EBIT
(Million $, Quarter ended November 30)

 

2015

2014

%
Change

North America

Footwear

2 162

1 925

12,3

Apparel

1221

1131

8,0

Equipment

164

185

-11,4

Total Sales

3 547

3 241

9,4

EBIT margin

24.9%

24.2%

0.7 pp

Western Europe

Footwear

845

864

-2,2

Apparel

391

384

1,8

Equipment

63

64

-1,6

Total

1 299

1 312

-1,0

EBIT margin

23.6%

19.9%

3.7pp

Central & Eastern Europe

Footwear

183

180

1,7

Apparel

126

149

-15,4

Equipment

17

18

-5,6

Total

326

347

-6,1

EBIT margin

23.3

16.5%

6.8 pp

Greater China

Footwear

600

463

29,6

Apparel

306

266

15,0

Equipment

32

29

10,3

Total

938

758

23,7

EBIT margin

34.9%

34.0%

0.9 pp

Japan

Footwear

128

108

18,5

Apparel

63

75

-16,0

Equipment

14

16

-12,5

Total

205

199

3,0

EBIT margin

22.9%

14.6%

8.3 pp

Emerging Markets

Footwear

674

727

-7,3

Apparel

255

280

-8,9

Equipment

55

68

-19,1

Total

984

1 075

-8,5

EBIT margin

24.5%

22.0%

2.5 pp

       

Global Brand Divisions

18

27

-33,3

Total Nike brand sales

7 317

6 959

5,1

EBIT margin

17.1%

15.4%

1.7 pp

Other brands sales

398

434

-8,3

EBIT margin

21.3%

20.3%

1.0 pp

REVENUES (continuing operations)

7 686

7 380

4,1

Total EBIT

975

887

9,9

Total EBIT margin

12,7%

12,0%

0.7 pp

Despite the sizable jumps in orders, Nike's forecasts remain unchanged. It expects reported sales to increase at a low double-digit rate for the third quarter of its fiscal year, amounting to mid-teens growth in constant currencies. Gross margin is predicted to decrease by about 0.5 percentage points for the quarter, due to the ongoing efforts to clear North American inventories. For the full year, reported sales are predicted to move up at a mid-single-digit range, while gross margin should expand by about 0.5 percentage points, owing to the group's strong performance in the first half.