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Nike Fiscal Q2 Earnings Beat Estimates But Stocks Fall

Nike Fiscal Q2 Earnings Beat Estimates But Stocks Fall
Nike investors are apparently not happy with the company’s earnings even after the share price of the company touched a record high on Thursday.
After the company announced fiscal second quarter results that easily beat the market estimates, the shares of the company went down in late hour trading indicating that a section of the investors are unhappy with the company performance and possibly wanted more.
Nike announced an raise of 70 cents a share in profits for the fiscal second-quarter which comfortably beat market estimates of 58-cent a share on the average. Nike said that during the quarter, the company increased sale by 10 per cent to $10.3 billion and topping projections, even though, it said, the headwinds from tariffs that were stiffest in the period.
“Our brand is connecting deeply with consumers everywhere," Chief Executive Officer Mark Parker, who will step down next month, said on a conference call. “Our innovation is helping athletes prove that there are no limits. We’re challenging the conventions of retail at every term." He also stuck to the company’s earlier forecast for the full year. Nike also expects that its gross margin in the fiscal third quarter will remain flat year-over-year and come at about 45.1 per cent.
Nike has developed a trend where its quarterly performance beats estimates on a regular basis but such performance does not always gets reflected in the stock price. Staring mid-2012, Nike had managed to beat market estimates in every quarter barring one quarter. However during that period, there has been a drop of about one third in the stock price of the company. 
Following the announcement of fiscal second quarter results, there was a fall of 3.1 per cent in the share price of Nike.
Analysts said that a section of investors may have been put off by two negative numbers - profit margins and inventories.
At 44 per cent, Nike slightly missed gross margin estimates of 44.1 per cent for the quarter even though it was a year on year increase. One of the drivers of the growth in margins is the more focus of the company on selling direct to its customers.
A lot of factors, many not directly tied to product, were responsible for the margin numbers, said company’s Chief Financial Officer Andy Campion on the call. The profit margin was reduced by 40 to 50 basis points because of the trade tariffs while it was also affected by increase in investments in the company supply chain and apparel distribution. Currency fluctuations also put pressure on margins.
“There are a lot of puts and takes within margin in any given quarter," Campion said. “I would tell you not to focus on a quarterly margin expansion result, especially in these times, as indicative of a trend."
On the other hand, there was a 15 per cent increase in inventory at $6.2 billion – which is an all-time high. a higher rate of on-time deliveries from factories and strong global demand was responsible for the rise in inventories, Nike said.

Christopher J. Mitchell

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