Nike Q1 Numbers - Healthy Beat

On Tuesday evening Nike released their Q1 results, which were as Goldman Sachs put it, a "high quality beat". The stock closed up 4%, and is at a new all-time high.



Looking at the stock price quickly, between the end of 2014 and the end of 2017, the share price went sideways. You could have been unlucky and bought the share in November 2015, and would be down 25% in October 2017. See the five year graph below. The reason that I bring this up is because many clients got frustrated with Nike because 'it is doing nothing', and wanted to sell their holdings. Share prices don't go up in a straight line, hold quality companies for the long-term.



Back to the numbers, Revenue grew at 7%, Net Income was up 25%, all resulting in EPS of 86c for the quarter. The forecast was for EPS of 70c. The Greater China area grew sales by 27%, where the region grew online sales by 70%! What trade war? Overall, global digital sales were up 42%.

The key reason why Nike profits are up so much is because they are selling directly to consumers, and cutting out middlemen like wholesalers and big retail stores. Part of that initiative to sell directly to customers is through their digital platform. When customers go directly to Nike, the company can control the user experience and they can take more of the profits for themselves. Thanks to this initiative, gross margins grew by 150 basis points to 45.7%!

Another driving force for the company is an increase in sales to woman and children. Nike mentioned there was a nice tailwind from the USA Woman's team winning the Fifa World Cup. Nike is the team's sponsor.

There are many reasons to own Nike: more people are getting into fitness; china is snapping up the brand; more woman and children want to be seen with a 'swish'; going digital is resulting in bigger profits. In conclusion, stay long, stay strong.