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Nike’s results offer a clue about the strong dollar and the upcoming earnings season

How has the strong dollar impacted big multinational companies this quarter? Nike ‘s results after the bell on Thursday may offer a good preview of what’s to come as earnings season kicks into a high gear in mid-October. The sneaker and apparel giant saw a currency headwind of about 6 percentage points in its fiscal first quarter ended Aug. 31. Compare that with its fourth-quarter report from three months ago, when Nike saw a 4 percentage point impact. And going back six months , the headwind was 3 percentage points. So the headwind has basically doubled in six months. But take a closer look at the report and you’ll see the real currency impact. Nike’s European division reported revenue that was up just 1%. Take out the currency impact though, and sales in that region jumped 17%. In Asia (outside of China) and Latin America, revenue rose 5%. Strip out the currency impact, and revenue grew a much stronger 16%. It was a bit of a surprise to see Nike’s small earnings and revenue beat . But not all is rosy despite those better-than-expected numbers. The stock is down nearly 10% in extended trading as inventories swelled 44% ahead of the holidays and weakness continues in China, its third biggest market. Including currency, China sales fell 16% year over year. That was about in line with estimates. Offsetting that drop were better-than-expected sales in North America. However, domestic sales may have been helped by markdowns Nike made to help clear out inventory . The price cuts might have helped sales, but the discounts took a bite out of profitability. Nike’s overall gross margin came in at 44.3% — or 1 percentage point below estimates and a couple percentage points below the year-ago level. Nike points out the reason for the weak margins specifically: “The overall decrease in margins was primarily driven by North America, which took measures to liquidate excess inventory through NIKE Direct markdowns and wholesale marketplace actions.”

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