With better-than-anticipated revenue and gross margins driven by a healthy innovation cycle, an acceleration of growth in North America and continued digital momentum, Nike reported second-quarter earnings and revenues that handily topped Wall Street targets and wowed many analysts.

Highlights of the quarter ended November 30 included:

  • Revenues for Nike Inc. increased 9.6 percent to $9.4 billion and grew 14 percent on a currency-neutral basis. Wall Street’s consensus estimate had been $9.17 billion.
  • Revenues for the Nike Brand were $8.9 billion, climbing 10.0 percent overall and up 14 percent on a currency-neutral basis. The currency-neutral gains were driven by accelerated growth across all geographies and in Nike Direct, led by a 41 percent hike Nike Digital. Revenue grew in nearly every key category led by sportswear with well-balanced double-digit growth across footwear and apparel globally.
  • Gross margin increased 80 basis points to 43.8 percent versus guidance of 50 basis points expansion.
  • Net income increased 10.4 percent to $847 million, or 52 cents a share, beating consensus estimates of 46 cents.

On Friday the first trading day after earnings were released, shares of Nike rose $4.84, or 7.2 percent, to $72.37.  On Wednesday, shares closed at $73.01.

Here, a few analysts’ takes:

Sam Poser, Susqueehanna Financial Group, (“Positive” rating, $100 price target): “Buy NKE. A robust new product pipeline and more focused marketing strategy is driving healthy revenue and margin growth across categories and geographies. North American (NA) direct and wholesale revenue growth continues to accelerate (+9%). Nike digital revenue increased 41% on an FX-neutral basis. Improvements in the scarcity model, the speed of the product pipeline, and digitally-driven consumer engagement are still in their early stages and should continue for the foreseeable future. Due to the aforementioned improvements, Nike is boxing out its competition, including Adidas and Under Armour.”

Jim Duffy, Stifel (“Buy” rating, $96 price target): “NIKE’s FY2Q showed impressive 14% cc growth and gross margin upside with acceleration in all regions despite concerns of macro issues in EMEA and China. Strength is a function of compelling innovation, product cycle strength, and digital execution (Digital accelerating to 41% cc from 34% cc in FY1Q). With a strong pipeline of new products and building digital competencies, we expect more to come and continue to see upside capacity to the outlook for revenue and gross margin into FY20. We have confidence in NIKE to execute through macro related challenges into FY20 and gain share and continue to view NIKE shares as a solid core holding for large cap growth investors.”

Christopher Svezia, Wedbush (“Outperform” rating, $90 price target): “NKE’s robust 2Q19 beat along with the raised outlook are the bi-products of a company that is gaining share with global momentum via innovative merchandise and solid execution of key strategies. In 2Q, all regions and mobile-led digital saw accelerating CN growth and importantly, China posted strong upside, allaying a key market fear of a slowdown. Jordan also notably returned to growth in NA. Digital, up +41%, and higher full price sales helped deliver gross margin upside as well. In terms of the raised FY19 outlook, expectations for both sales and gross margin are likely both conservative as the company’s strong consumer engagement and product innovation continue to drive higher full price sales and elevated digital momentum, in addition to opportunities with women’s, Jordan, and core footwear (mid-tier NA), among others. In the end, China sales concerns have been diminished and NKE is executing solid strategies and delivering innovative product to its digitally connected and engaged consumer at speed, which should continue to drive increasingly profitable global market share gains. Shares may open at ~23x our FY20 EPS estimates, or a ~5% discount to historic levels, making NKE attractively valued. Reiterate OUTPERFORM.”

John Kernan, Cowen (“Market Perform” rating, $80 price target): “The stock is still not relatively cheap to peers or the market but the execution remains outstanding and we and consensus model NKE to grow EPS mid-teens in FY20 on top of high-single-digit growth in FY19E.”

Lauren Cassel, Morgan Stanley (“Overweight” rating, $103 price target): “+14% CC revenue growth and 13% EPS growth highlight NKE’s defensibility amidst an increasingly volatile macro backdrop. +41% digital growth and revenue acceleration across all regions showcase NKE’s DTC transformation and innovation pipeline are still in early innings. NKE remains our top pick.”

Camilo Lyon, Cannacord Genuity (“Buy” rating, $95 price target):  “NKE reported robust FQ2 results with adj. EPS of 52c beating our 45c estimate and consensus at 46c. More importantly, it was a high quality beat with sales (+9.6% reported vs. our +7% est.), gross margin (+79bps vs. our +50bps est.) and SG&A margin (33.5% vs. our 33.8% est.) coming in ahead of our expectations. Sales growth of 14% cc was broad based with all geographies accelerating sequentially (NA +9% cc, EMEA +14% cc, Greater China +31% cc, and APLA +15% cc). Furthermore, EBIT margins also expanded across all geographies, implying a healthy balance of full priced sales with lower mix of markdowns globally. We are particularly encouraged with the +DD growth in brand Jordan, including a return to growth in NA (sooner than we anticipated). Q2 also demonstrated significant momentum in women’s (+DD), outpacing men’s growth in every geography. Another key growth priority, digital (+41% cc), also accelerated sequentially, highlighting the success NKE is having with its digital initiatives across all regions (+75% APLA). As we look to the 2H and beyond, we are confidant that NKE’s robust product pipeline (e.g. launch of Air Max 720 and Hyperadapt 2 in spring) coupled with an intensifying focus on digital, increasing scale of Express Lane, and elevated customer experience at retail (House of Innovation in Shanghai and New York are exceeding expectations) will continue to deliver outsized growth across all the key growth catalysts well beyond F19. We reiterate our BUY rating.”

Image courtesy Nike