NIKE (NKE 54.74, -3.27) is set to begin lower by 5.6% after the company's quarterly report was overshadowed by cautious guidance.
The athletic apparel giant did beat bottom line expectations, delivering earnings of $0.68 per share, but a 5.0% year-over-year increase in revenue to $8.43 billion was shy of market expectations.
It is worth pointing out that Nike's earnings beat was aided by a lower tax rate (13.8% versus 16.3% one year ago), which was due to a reduction in tax reserves and higher share of sales outside of the U.S. The company's bottom line beat overshadowed a 140-basis point contraction in gross margin, which declined to 44.5%. Higher average selling prices were more than offset by higher product costs, higher off-price sales, and unfavorable exchange rates.
NIKE Brand revenue rose 5.0% to $7.92 billion while Converse revenue grew 2.0% to $498 million.
NIKE's sales breakdown by region shows that growth in Asia and Emerging Markets was the strongest while Western Europe and North America followed. NIKE's total sales in Japan increased 15.0% to $236 million. This was driven by a 29.0% spike in Apparel sales to $67 million while Footwear sales jumped 15.0% to $153 million. Equipment sales in Japan declined 20.0% to $16 million.
In Greater China, revenue grew 9.0% to $1.08 billion. Footwear sales grew 8.0% to $776 million while Apparel sales increased 15.0% to $271 million. Equipment sales were unchanged at $28 million.
Emerging Markets total revenue grew 8.0% to $950 million. Footwear sales jumped 13.0% to $673 million while Apparel sales declined 3.0% to $222 million. Equipment sales were flat at $55 million.
Western Europe total sales increased 4.0% to $1.50 billion. The increase was driven by Apparel sales, which increased 14.0% to $445 million. Footwear sales rose 1.0% to $990 million while Equipment sales ticked down 2.0% to $64 million.
North American sales rose 3.0% to $3.78 billion. Footwear revenue increased 4.0% to $2.49 billion while Apparel revenue rose 3.0% to $1.15 billion. The increases more than offset a 16.0% decline in Equipment revenue, which fell to $138 million.
Central & Eastern Europe total revenue rose 1.0% to $362 million. Apparel sales increased 8.0% to $110 million while Footwear sales fell 2.0% to $232 million. Equipment sales were flat at $20 million.
Looking ahead, NIKE expects that a challenging retail environment will persist. The company's futures orders are down 4.0% with North American futures order down 9.0%. Gross margin is expected to contract once again, declining between 150 and 175 basis points.