Nike 1Q numbers - Rev flat, profits down

Last week we had 1Q numbers from Nike, which missed analyst estimates at the top line but beat on the bottom line. Here is the press release from the company, Nike, Inc. Reports Fiscal 2018 1Q Results . Here are the headline numbers, revenue of $9.07 billion up 0.1% from $9.06 billion and EPS of $0.57 down 22% from 0.73%. A big reason for the drop is due to their effective tax rate going from 2.5% to 11.4%; as you can see much lower than the 35% US tax rate thanks to all the deductions allowed.

As it stands at the moment, the company has two distinct parts to the business. They have their North America (NA) segment which accounts for around 45% of their sales and the 'international' segment which is around 55%. The NA division has been struggling as wholesaler middle men like Foot Locker have been closing stores. There has also been increased competition from the likes of Adidas and Under Armour. Compared to the first quarter of 2016, the NA division saw revenues drop 3% to $3.9 billion. To counter the issues of middle-men distributers, Nike has been going directly to the customer in the form of the Nike stores and through their online retail page. The Nike direct division had sales increase by 11% and the online segment grow sales by 19%.

The bulk of the International division had growth of around 5%, but the region of most excitement for Nike is China. They grew sales by 12% in China, bringing in revenue of $1.1 billion for the quarter. For now all the growth in China is offsetting the shrinkage in NA but once NA stabilises we should see strong top-line growth again.

If the athleisure space was a stagnant market there would be cause for concern due to the resurgence of their competitors. This is a market that is still growing, particularly in emerging markets, there is space for all the competitors. The main reason to own Nike at the moment is due to the huge growth potential coming out of China.