Nike Q1 2018 Results Reflect International Growth, Weighed Down By North American Decline

Are the United States showing signs of a crisis in consumer spending? One of the early signs may include Q1 2018 financial results reported by Oregon-based athletics brand Nike (NKE) reflect growth in international markets but an unexpected dip in North America wholesale revenue.

For the fiscal 2018 first quarter ended August 31, 2017 Nike reported $9.1 billion in revenues, which is flat on last year’s period both in reported and currency-neutral terms. Gross profit was listed at $3.96 billion, down 4 percent from $4.12 billion in last year’s period.

Speaking on the overall results, which had analysts talking and saw the Nike stock take a 4 percent decline in morning trading, Nike executives remained positive and focused on the bigger picture.

“This quarter, we captured near-term opportunities through our new Consumer Direct Offense,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “Looking ahead to the rest of fiscal 2018, we will ignite NIKE’s next horizon of global growth through the strength of our brand, the power of our innovative products and the most personal, digitally-connected experiences in our industry.”

As a quick reminder, this summer’s Consumer Direct Offense simplified the NIKE brand’s geography structure from six geographies to four. The markets now consist of North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA).

Key figures for Q1/2018 at a glance

  • Overall revenues for the Nike brand were $8.6 billion, up 2 percent on a currency-neutral basis driven by growth in Greater China, EMEA and APLA, including growth in Sportswear.
  • Revenues for Converse were $483 million, down 16 percent on a currency-neutral basis, mainly driven by declines in North America.
  • Diluted earnings per share for the quarter were $0.57, down 22 percent driven by a gross margin decline, a higher effective tax rate and higher other expense.
  • Gross margin declined 180 basis points to 43.7 percent. Main reasons were unfavorable currency effects and off-price sales.
  • Net income decreased 24 percent to $950 million as lower selling and administrative expense was offset by a gross margin decline, a higher effective tax rate and growth in other expense.

A look at Europe

  • Europe is now listed as the EMEA market as part of the Consumer Direct Offense and generated sales of $3.9 billion in total, reflecting a 3 percent decline on last year.
  • Footwear sales in Europe were up 2 percent currency-neutral at $1.47 billion in Q1. Apparel sales increased 10 percent to $743 million, while equipment sales increased 8 percent to $130 million.

As Trevor Edwards, President of NIKE Brand said in the call: “Digital, led by mobile remains a key driver for us in this region. For example, in London grew 60% over the prior year. Last quarter, we expanded our sneakers out to Europe adding 19 new markets and their performance is outpacing expectations.”


The challenges facing Nike are the same ones weighing down other mid-sized to major players at the moment, especially in the United States: Weakened retail environment (Converse sales decreased 16 percent in North America last quarter) and adverse currency effects, plus instability in global trade agreements pose headwinds even for a brand that posted five years of unchecked growth.

At the same time, Nike has spent the past few years making strategic investments into opening up new markets, especially in Asia where Nike divisions are seeing double-digit growth. A whopping 55 percent of Nike’s revenue is now generated in markets outside the United States.

Investments into direct-to-consumer sales infrastructure – and moves like a recent pilot program with Amazon – are also paying off. DTC revenues grew 11 percent in Q1 2018, with online sales up a strong 19 percent. While implementing the shift towards DTC is easier in new markets, it can take some time in established markets.

As CEO Mark Parker explained in the earnings call about the example of China: “With an economy that’s being driven by digital natives, they bypassed old models, naturally blending digital and physical retail and shopping within their social channels.”

“In contrast, a developed market like North America must embrace change to its legacy retail infrastructure. As the leader, we’re fully committed to energizing and growing the marketplace through both our own NIKE Direct businesses and with strategic wholesale partners.”


Nike is well aware that the future depends on maintaining a high value proposition around its brands as products and being conveniently available to consumers across channels.

In the conference call, CEO Mark Parker pointed out, “three consumer insights that are driving today’s marketplace shifts: the appetite for a constant flow of fresh and innovative product, the expectation of superior service and the demand for real-time delivery.”

Going deeper into the Consumer Direct Offense, Mark Parker gave a glimpse of how deep-reaching these changes are: “We’re breaking old models and we’re fully realigning our teams to be more personal by adding resources to our fastest-growing cities, editing our lines to create more choice on top-selling products, investing in better data and analytics to sense market shifts faster, activating new product creation teams focused only on speed to market and we’re leading with mobile.”

Looking ahead, the CEO said: “We plan to provide much more dimension of all our growth accelerators at our upcoming Investor Day next month. And we’ll show you in detail how personal and mobile are fueling our transformation into the Consumer Direct Offense, and how we’re creating sustained growth for our company, the industry and our shareholders for years to come.”

Quotes taken from Nike Incs official press release with supplemental quotes from earnings call transcript at Seeking Alpha


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