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Nike's North American sales disappoint, shares fall

Emily McCormick
Reporter

Nike ( NKE ) reported North American sales that fell short of consensus expectations, overshadowing better-than-expected earnings results and sending shares lower in extended trading.

Sales in North America, Nike’s largest market, grew 7% to $3.81 billion in the third quarter, reversing a 6% decline in the year-ago quarter. However, sales in the region were below the $3.85 billion expected by analysts ahead of results.

Greater China sales continued to support total revenues, with sales in the region increasing 19% to about $1.59 billion. This marked the largest quarterly sales growth of any region for the quarter. The pace of increase, however, marked a deceleration from the 24% growth Nike saw in Greater China during the year-ago period.

Nike also saw single-digit sales growth in its Europe, Middle East & Africa geographic segment, as well as its Asia Pacific & Latin America segment.

“The Consumer Direct Offense is delivering broad-based growth across all four of our geographies, led by continued momentum in China,” CFO Andy Campion said in a statement. The Consumer Direct Offense was a strategy Nike introduced in 2017 to target customers in key regions for new product and digital roll-outs.

Shares of Nike declined 4.63% to $83.93 each as of 10:38 a.m. ET.

The athletic-wear maker, which reported earnings results Thursday after market close, delivered adjusted earnings of 68 cents per share on revenue of $9.6 billion for its fiscal third quarter. Consensus estimates had been for adjusted earnings of 65 cents on revenue of $9.65 billion, according to Bloomberg-compiled data.

Gross margin was 45.1%, greater than the expected 44.7%. The improvement in one of Nike’s closely-watched gauges of profitability was driven by higher average selling prices, foreign currency exchange rates and growth in NIKE Direct, the company said in a statement.

Nike saw the launch of several noteworthy new products during its fiscal third quarter. The company launched its Flyknit Epic React 2 shoe, which Barclays analysts said were being received by retailers in larger quantities earlier in the year than the first iteration of the Epic React in 2018. Nike also launched its highly anticipated Air Max 720, adding to its popular Max platform.

Analysts were largely bullish on Nike ahead of third-quarter results. The company boasts a longstanding history of exceeding earnings expectations and has beaten Wall Street’s bottom-line estimates 93% of the time over the past 11 years, according to Bloomberg.

A jogger wearing Nike shoes runs past the Boston skyline along the Charles River in Cambridge, Massachusetts, U.S., March 18, 2019. REUTERS/Brian Snyder

Peer footwear makers have recently reported soft financial results, which some analysts had said pointed to market share losses carving out room for Nike. German shoe-maker Adidas reported fourth-quarter results last week, with operating profit coming in short of expectations. The company said it expects to see negative impacts to sales growth especially in North America during the first half of the year due to supply chain issues.

Recent reports from some of Nike’s biggest retail partners also presaged strong quarterly earnings for the footwear giant. Footlocker ( FL ) earlier this month posted much better-than-expected comparable same-store sales of 9.7%, with management citing branded Nike products as one of the key drivers of growth in its apparel business. Likewise, Dick’s Sporting Goods ( DKS ) CEO Edward Stack said in the company’s call with investors last week that he was “enthusiastic” about the Nike brand.

Shares of Nike were up 18.7% for the year-to-date through Thursday’s close.

Updates with opening share prices on Friday.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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