NIKE (NKE) is down 5% after the company reported somewhat soft third quarter results and guided fourth quarter revenue below consensus.
Third quarter revenue grew 7% to $9.6 bln, which was essentially in-line with consensus. Revenue growth slowed a bit in every region. NIKE reported 7% sales growth in North America (its largest market at a 40% mix), which missed expectations.
Importantly, gross margin expanded 130 bps yr/yr to 45.1%, which was above the company's 44.5% guidance.
However, SG&A expense grew 12% versus guidance for a low double digit increase. Operating overhead expense increased 17%, driven primarily by wage-related expenses.
EPS was flat yr/yr at $0.68 and beat estimates by $0.03.
On the call, management guided for low single digit revenue growth including a 6% foreign exchange (FX) headwind. Estimates called for near 6% revenue growth. NIKE expects the FX headwind to lessen after this quarter. Management also called for 75 basis points of gross margin expansion, which puts them ahead of plan for fiscal 2019, and a high single digit increase in SG&A expense.
NIKE management also guided fiscal 2020 in-line with its long-term outlook: high single-digit revenue growth and mid-teens EPS growth.
Overall, results were fairly disappointing for a stock that broke out to an all-time high earlier this month.
With a market capitalization just over $130 bln, the stock has earned its premium valuation of ~27x next year's earnings after years of execution and outperformance. The stock trades roughly in-line with rivals Under Armour (UAA) and lululemon (LULU) on an EV/EBITDA basis at ~22x.