For the three months to Feb. 28, net income edged up 3% to $685 million from $662 million a year earlier thanks to a jump in revenue in Western Europe, gross margin expansion of 30 basis points to 44.5%, and a lower tax rate. This was partially offset by higher selling, general and administrative investments.
Outlook Below Estimate
Gross margin benefited from higher average prices and continued growth in the higher margin direct to consumer business, and was partially offset by higher product input costs, unfavorable foreign exchange rates, and higher discounts.
Revenues were up 13% to $6.97 billion from $6.19 billion a year earlier. Sales for the Nike brand grew 14% to $6.6 billion, while Converse sales were up 16% to $420 million, primarily driven by a strong performance in the brand’s largest direct distribution markets of the United States, China and United Kingdom.
“Our strong third quarter results demonstrate our relentless focus on delivering innovations that resonate with consumers,” said CEO Mark Parker. “Despite macroeconomic challenges, Nike delivers consistent results because we focus on the biggest opportunities for growth while we manage risk across our diverse global portfolio. This is how we continue to drive long-term value for our shareholders.”
Nike’s fourth quarter forecast though was below estimates. Chief Financial Officer Donald Blair told analysts on conference call sales this quarter will grow at a high single-digit percentage rate. Analysts had estimated a 12% gain.
Nike, which got 45% of its sales outside of the United States last quarter, has to contend with a stronger dollar–a trend that reduces the value of its revenue and profit generated internationally.
Foreign-exchange “headwinds have been a significant drag on EPS growth so far this year, and we expect to face ongoing pressure” in the fourth quarter and into next year, Blair said.