NIKE (NKE 62.95, -1.82) has given up 2.8% after the company's above-consensus results were overshadowed by contracting margins.
The athletic apparel giant reported better than expected second quarter earnings of $0.46 per share on a 4.6% year-over-year increase in revenue to $8.55 billion, which was also ahead of expectations.
While the company's top- and bottom-line results exceeded expectations, the report showed that gross margin contracted 120 basis points to 43.0% due to unfavorable exchange rates and higher product costs per unit. Furthermore, the company expects that gross margin will remain pressured, falling between 50 bps and 100 bps during fiscal 2018.
Selling and administrative expenses grew 10.0% to $2.80 billion, driven by a 15.0% increase in sports marketing and advertising costs. The effective tax rate was reported at 12.7%, down from 24.4% one year ago. The decline was due to a tax benefit from stock-based compensation and a growing share of earnings made outside the U.S.
NIKE Brand revenue grew 4.0% to $8.10 billion thanks to growth in Europe, Middle East & Africa, Greater China, and Asia-Pacific & Latin America. Converse revenue declined 4.0% to $408 million as lower sales in the U.S. offset international growth.
Looking at the regional sales breakdown, North American revenue declined 4.5% to $3.49 billion. Apparel sales edged up 0.5% to $1.28 billion, but Footwear sales fell 6.7% to $2.07 billion and Equipment sales fell 13.9% to $136 million.
Europe, Middle East & Africa total revenue jumped 19.0% thanks to growth in all three segments. Apparel sales rose 26.4% to $743 million while Footwear sales rose 15.6% to $1.29 billion and Equipment sales increased 13.6% to $100 million.
Greater China total revenue rose 15.8% to $1.22 billion. Footwear sales spiked 18.5% to $793 million while Apparel sales expanded 11.8% to $397 million and Equipment sales increased 3.2% to $32 million.
Asia Pacific & Latin America revenue increased 5.6% to $1.27 billion as 6.7% growth in Footwear sales (to $873 million) and 7.2% growth in Apparel sales (to $342 million) offset a 15.9% decline in Equipment sales (to $58 million).
In addition to the aforementioned gross margin guidance, the company noted that revenue in the third quarter could grow at a slightly slower pace than the 4.6% growth rate recorded in the second quarter. Revenue growth for the fiscal year is expected in the mid-single digit range.