NIKE, Inc. (NYSE:NKE) Q1 2019 Earnings Conference Call - Final Transcript
Sep 25, 2018 • 05:00 pm ET
financials in the short term. First, it's important to note that the revenue line item in our P&L is essentially unhedged. Therefore, our reported real dollar revenue growth reflects nearly all currency movements real time. We do have a robust hedging program that delays the impact of FX on our profitability for 12 to as much as 24 months, most notably with respect to developed market currencies, for example, the euro. However, it is not economical to hedge FX risk in many emerging markets such as Turkey, Argentina, and Brazil. And as for China, we're able to partially, but not fully hedge our net exposure.
Our focus is on sustaining strong, currency-neutral operating momentum over the full year and even more importantly, over the longer term. But, I'll provide a bit of context on Q2. For Q2, we expect strong currency-neutral revenue growth in line with the 9% currency-neutral revenue growth we delivered in Q1. That said, taking into account real time FX dynamics, reported real dollar revenue growth for Q2 is likely to be 2 to 3 points lower than our currency-neutral revenue growth.
For gross margin, we expect Q2 expansion approaching the same level of expansion that we delivered in Q1. As a reminder, we expect less gross margin expansion in the first half of the year, as compared to the second half of the year. In Q2, we expect SG&A growth in the low-teens driven by the timing of our investments in sports marketing, including the kick-off of the NBA and NFL seasons, and the timing of strategic investments in new digital capabilities. For other expense, net of interest expense, we expect expense in Q2 to be in the $30 million to $40 million range.
Our execution of the Consumer Direct Offense is creating brand distinction with consumers around the world and driving strong financial performance. At the same time, we see ourselves as being in the early stages of this transformation. There is no finish line for NIKE, particularly as it relates to digital. So, we will continue to invest in the capabilities that will differentiate and create competitive advantage for NIKE long-term. Those capabilities include product innovation, brand marketing, digital, and speed within our supply chain.
We are thrilled with our momentum out of the gate in fiscal year 2019. And nonetheless, we remain on the offense, identifying and attacking opportunities to elevate our game, build on our momentum with consumers, and ensure that we deliver sustainable, profitable, capital-efficient growth over the long term.
With that, we'll now open up the call for questions.