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Earnings Results: Nike stock rises 5% after earnings and sales beat, but China slump continues

Nike Inc. reported stronger earnings and sales than expected Monday, sending shares higher in after-hours trading despite concern about slumping China sales.

Nike
NKE,
-0.80%

reported fiscal third-quarter earnings of $1.4 billion, or 87 cents a share, down from 90 cents a share a year ago. Revenue in the period, which ended Feb. 28, increased to $10.87 billion from $10.36 billion last year. Analysts on average expected earnings of 71 cents a share on sales of $10.6 billion, according to FactSet.

Shares gained more than 5% in extended trading immediately following the release of the results.

Nike executives credited continuing progress in selling direct to consumers as a reason for the sales increase and a 46.6% gross-margin for the quarter, which was up 100 basis points from the same period a year ago.

“Nike’s strong results this quarter show that our Consumer Direct Acceleration strategy is working, as we invest to achieve our growth opportunities,” Chief Executive John Donahoe said in a statement.

Nike Direct sales grew 17% year-over-year, executives said, with revenue from Nike-owned stores increasing 14% and digital sales rising 22%. While Nike has benefited from the focus on selling its own wares, the move has harmed some retail partners such as Foot Locker Inc.
FL,
-4.11%

“In western markets, progression to a higher margin, higher return business model is accelerating as exceptionally lean marketplace inventories reinforce consumer adoption of [direct-to-consumer] digital,” Stifel analysts said in a preview of the report last week, while dropping their price target to $160 from $202 while maintaining a buy rating.

One concern for analysts was the progress in other markets, namely China. Greater China was the only geography to show a year-over-year decline in sales in Monday’s report, declining 5% to $2.16 billion.

“China market challenges, we believe, are anticipated by the market and reflected in the recent retrenchment in Nike shares,” the Stifel analysts wrote, adding that they don’t expect China sales to turn around until next fiscal year.

Nike shares have suffered amid concerns about sales in China, falling 21.9% so far this year as the S&P 500 index
SPX,
-0.04%

fell 6.4% and the Dow Jones Industrial Average
DJIA,
-0.58%
,
which counts Nike as a component, fell 4.4%,.

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