Nike Inc. (NYSE: NKE) reported fiscal second-quarter 2020 results after markets closed Thursday. The sports apparel and gear maker reported quarterly diluted earnings per share (EPS) of $0.70 on revenues of $10.3 billion. In the same period a year ago, Nike reported EPS of $0.52 on revenue of $9.37 billion. Second-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.58 and $10.09 billion in revenue.

Year over year, net income increased 32% to $1.1 billion driven primarily by 10% revenue growth, gross margin expansion of 20 basis points to 44%, selling and administrative expense leverage, and a lower tax rate. Diluted EPS increased 35%, reflecting a nearly 2% decline in the weighted average diluted common shares outstanding.

U.S. sales rose 5% overall with footwear sales up 8% to $3.98 billion. In Europe, the Middle East, and Africa sales rose 10% to $2.54 billion and apparel sales were up 13%. In Greater China, sales rose 20% to $1.85 billion with footwear up 22% and apparel up 15%. In Asia Pacific and Latin America, sales rose 13% to $1.47 billion with apparel up 14% and footwear up 13%.

Overall, footwear sales rose 12% to $6.2 billion, apparel sales rose 8% to $3.29 billion, and equipment sales rose 6% to $341 million. EBIT fell by 1% in North America and 6% in the global brands division while rising 24% in China, 13% in EMEA, and 17% in Asia/Latin America.

CFO Andy Campion commented:

NIKE delivered another strong quarter of accelerating, high-quality growth, driven by strategic and targeted investment in our digital transformation. As we deliver a relentless flow of innovation and scale NIKE’s digital advantage, we are positioned for even greater competitive separation and long-term shareholder value creation.

The company has enough faith in its “digital advantage” to have terminated its Nike-brand store on Amazon.

Nike did not provide any third-quarter guidance but analysts are looking for EPS of $0.77 and sales of $10.4 billion. For the full fiscal year, EPS is forecast at $2.98 on sales of $42.22 billion.

In September, management said it expected high-single-digit full-year sales growth, with gross margins expanding by 50 to 75 basis points. Those words may have come back to haunt Nike. Sequentially, gross margins fell from 45.6% to 44%. That is not the directional trend analysts or investors want to see.

In the fourth quarter of last year, Nike’s gross margin was 45.5%, implying a gross margin at the end of the current fiscal year of 50% or better. That’s still possible, of course, while also concerning. Margins could be further crimped by the impact of tariffs on goods imported from China.

Before announcing earnings, the company’s stock posted a new 52-week and all-time high of $101.15 on Thursday. After dropping by almost 2.5% in after-hours trading, the stock traded down about 0.7% at $100.44. The 52-week low is $66.53 and the consensus price target on the stock is $104.63.

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