NIKE Inc. expects an ongoing drag on revenue growth from currency exchange during the fourth quarter of fiscal 2019 but the company should still grow revenue and expand gross margins during the upcoming quarter and fiscal year, executives said March 21.
The Beaverton, Ore.-based Nike expects low-single-digit revenue growth during its fourth quarter of fiscal 2019 including an expected impact of 6 percentage points from currency exchange, Executive Vice President and CFO Andrew Campion said.
Gross margin for the quarter should expand by 75 basis points, while expenses should grow in the high-single-digit range and Nike's effective tax rate should be 18% to 20%, Campion said during a conference call discussing Nike's earnings for the third quarter of fiscal 2019.
Nike beat analysts' earnings and total revenue expectations for the third quarter but North America sales growth of 7% fell below the expectations of analysts calling for as much as 10% growth, CNBC reported March 21. Shares in Nike dropped 4.2% in late trading on March 21 to $84.30 per share.
Campion also offered a preview of expectations for fiscal 2020, predicting growth in revenue, gross margin and profitability all in line with long-term targets first offered in 2017. Those targets call for high-single-digit revenue growth, gross margin expansion of up to 50 basis points per year and "mid-teens" EPS growth, according to Nike.
Currency headwinds should start to narrow in 2020, Campion said.
"Of course, we continue to operate in a dynamic environment, so we'll share more specific guidance for fiscal year  in our next earnings call," Campion said.
Nike executives are looking to the 2020 Tokyo Olympics to help drive performance in Japan, which along with Korea led growth for the company's Asia-Pacific and Latin America business. The region reported 14% currency neutral revenue growth during the quarter, according to Nike.
The company's digital business also grew revenue in the region by more than 60% during the quarter, Campion said.
"Both the sneakers app and the newly launched Nike app are resonating strongly with consumers. Our running innovation has also resonated with the highly discerning Japanese running consumer, with Nike now having ascended to the No. 1 position in running across Japan," Campion said.
Nike is also eyeing China for future growth. Revenue in Greater China grew to $1.59 billion during the quarter, a 24% increase. Sales in the region grew faster than any of Nike's other divisions.
China is the world's largest footwear and apparel market and athletic footwear is growing by double-digits each year, Campion said.
"While basketball has long been popular with the Chinese consumer, we are now also seeing a running boom. And that is why Nike has always been a brand of China for China," he said.