Nike Inc. expects stronger revenue growth and gross margin expansion for fiscal 2019 but increasing volatility in currency exchange rates will weigh on that growth, executives said Dec. 20.
The sportswear manufacturer boosted its fiscal second-quarter earnings beyond its own and analysts' expectations. But foreign exchange also dealt a bigger blow than the company expected, and those impacts will likely carry forward through the year, Nike CFO and Executive Vice President Andrew Campion said during a conference call with investors and analysts.
For fiscal 2019, Campion forecast a currency-neutral revenue growth rate in the "high-single-digit range, potentially approaching low double-digits," and gross margin expansion of roughly 70 basis points in line with the first half of the year. That is up from a previous forecast of a high-single-digit revenue growth rate and at least 50 basis points of gross margin expansion.
The real-dollar revenue growth rate, though, should be more than 4 points slower than currency-neutral growth, Campion said.
Expenses will grow in the high single-digits as Nike invests in new digital capabilities, while the company's effective tax rate should remain in the mid-teens, Campion said.
For the fiscal third quarter, Campion predicted revenue growth at a pace within the high single-digits on a currency-neutral basis, though real-dollar revenue growth will be about 4 percentage points slower than currency-neutral growth. Gross margin expansion, meanwhile, should be in line with full-year guidance, expenses will grow in the low-double-digit range, and Nike's effective tax rate should be between 16% and 18%, he said.
Currency exchange slowed Nike's fiscal second-quarter revenue growth by 4 percentage points below real-dollar revenue growth, the company reported. Revenue came in at $9.37 billion, a 10% increase from $8.55 billion in the same quarter a year earlier. Revenue grew across all geographies, the company said. Revenue grew 14% on a currency-neutral basis.
"Our Q2 financial performance was exceptionally strong across nearly all dimensions. ... That said, FX headwinds had a slightly larger impact on our reported revenue growth than the roughly 3 points we anticipated 90 days ago," Campion said.
Nike's fiscal second-quarter results benefited from growth across all geographies, with double-digit revenue growth in all areas except North America, Chairman, President and CEO Mark Parker said during the call. Nike's North America sales grew 9% for the quarter.
In China, second-quarter sales grew 31% on a currency-neutral basis and 26% on a reported basis, thanks in part to the annual Singles' Day online shopping event. The strong sales there earned Nike a prime placement on Alibaba Group Holding Ltd.'s online Tmall, Parker said.
Tensions from the ongoing tit-for-tat trade war between the U.S. and China is not affecting Nike's China business, Parker said.
"We're mindful of those. But in the context of being mindful of those, we continue to see very strong momentum in China," Parker said.