Despite facing intense currency headwinds, Nike Inc. (NKE - Analyst Report) posted solid third-quarter fiscal 2015 results, leading shares of the company to jump 4.5% in yesterday’s after-hours trading session.

The company’s quarterly earnings of 89 cents per share surged 18.7% year over year and surpassed the Zacks Consensus Estimate of 84 cents. The bottom line was driven by an impressive top line coupled with gross margin improvement, partly offset by a rise in selling, general and administrative (SG&A) expenses and effective tax rate.

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Delving Deeper

Net sales of this sportswear retailer advanced about 7% to $7,460 million in the third quarter. However, it missed the Zacks Consensus Estimate of $7,634 million. Some analysts attributed the sales miss to unfavorable currency translations and other economic headwinds. On a currency neutral basis, sales rose 13%.

Revenues at the company’s NIKE Brand increased 11% year over year to $6.9 billion on a currency neutral basis. The segment registered growth across all regions and main product categories.

Further, revenues at the company’s Converse subsidiary soared 33% to $538 million on a currency neutral basis. The improvement was driven by persistent growth and favorable shipment timings in North America, shift to direct distribution in various regions and direct-to-consumer business enhancement.

Moreover, the company’s direct-to-consumer revenues ascended 15% in the quarter, backed by 7% comparable-store sales growth, new stores and significantly higher nike.com revenues.

Nike’s global future orders, slated for delivery from Mar 2015 through Jul 2015, climbed 2% year over year. On a currency neutral basis, future orders increased 11%, reflecting rising demand for the company’s products.

Gross profit improved 10% to $3,426 million with the gross margin increasing 140 basis points (bps) to 44.5%. The increase in gross margin was aided by a continued mix shift to higher margin products, partly offset by greater product input and warehousing expenses.

SG&A expenses escalated about 10% to $2,379 million on account of demand creation and operating overhead costs.

Demand creation remained flat year over year as digital brand and sports marketing efforts to support product launches were offset by lower advertising costs. On the other hand, operating overhead costs increased due to the expansion of direct-to-consumer business and investments made toward enhancing digital capacities and operational infrastructure.

Balance Sheet

Nike ended the third quarter of fiscal 2015 with cash and short-term investments of $5,361 million, compared with $5,029 million a year ago. Inventories grew about 12% to $4,246 million.

Nike’s long-term debt (excluding current maturities) stood at $1,082 million, compared with $1,201 million at the end of the third quarter of fiscal 2014. Shareholders’ equity was $12,368 million as of Feb 28, 2015, as against $11,051 million as of Feb 28, 2014.

Share Repurchase

During the reported quarter, Nike bought back 6.5 million shares worth $612 million. This buyback was part of the 4-year authorization worth $8 billion, approved by the company’s board in Sep 2012. So far the company has bought back 74.1 million shares worth nearly $5.3 billion under the program.

Conclusion & Outlook

Nike’s solid quarterly performance reflects its concentration on adopting innovations to keep up with its customers. In spite of foreign currency headwinds, the company’s results remain impressive, backed by its constant focus on exploiting growth opportunities along with efficient risk management. Going forward, Nike plans to follow these standards in order to enhance shareholder value in the long run.

Further, management remains optimistic about the fourth quarter of fiscal 2015 as it expects the strong momentum to continue. However, the company also expects foreign exchange headwinds to linger in the fourth quarter.

Nike anticipates its constant dollar revenues to increase in low double-digits for the fourth quarter and expects the same to grow in the low-teens range for fiscal 2015.

Nike anticipates gross margin for the fourth quarter to range from flat to a 25 bps improvement. For fiscal 2015, gross margin is expected to expand 100 bps.

Zacks Rank

Nike currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the apparel-shoe industry include Skechers USA Inc. (SKX - Analyst Report), Rocky Brands, Inc. (RCKY - Snapshot Report) and Iconix Brand Group, Inc. (ICON - Analyst Report). While Skechers and Rocky Brands sport a Zacks Rank #1 (Strong Buy), Iconix carries a Zacks Rank #2 (Buy).