Nike reported revenue Thursday that fell in need of Wall Street’s sales expectations for the primary time in two years, however it beat on earnings and gross margin estimates, sending its stock soaring in after-hours trading.
Here’s how the sneaker giant performed during its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly often called Refinitiv:
- Earnings per share: 94 cents vs. 75 cents expected
- Revenue: $12.94 billion vs. $12.98 billion expected
The corporate’s reported net income for the three-month period that ended August 31 was $1.45 billion, or 94 cents per share, compared with $1.47 billion, or 93 cents per share, a 12 months earlier.
Sales rose to $12.94 billion, up about 2% from $12.69 billion a 12 months earlier. Revenue for the quarter was just shy of the $12.98 billion analysts had expected, in keeping with LSEG.
Nike shares rose about 8% in prolonged trading Thursday.
The retailer maintained its full-year guidance of revenue growth within the mid-single digits and gross margin expansion of 1.4 to 1.6 percentage points.
“We’re closely monitoring the operating environment, including foreign currency exchange rates, consumer demand over the vacation season, and our second half wholesale order book,” said finance chief Matthew Friend on a call with analysts.
“We’re cautiously planning for modest markdown improvements for the balance of the 12 months, given the promotional environment,” he added.
For the second quarter, Nike expects revenue growth to be up barely versus the prior 12 months and gross margins to grow by about 1 percentage point versus the prior 12 months.
Investors have been laser focused on Nike’s recovery in China, its relationship with its wholesale partners and the way the resumption of student loan payments will impact sales.
They’re also keen to see Nike’s margins get well after bloated inventories, high promotions and provide chain woes contributed to lower profits over the previous couple of quarters.
In the course of the quarter, Nike’s gross margin fell about 0.1 percentage points to 44.2%, however it was higher than the 43.7% analysts had expected, in keeping with StreetAccount. The corporate attributed the gross margin drop to higher product costs and currency exchange rates, but those trends were offset by price increases, which contributed to the earnings beat.
Sales in China grew by 5% in comparison with the year-ago period to $1.7 billion, which fell in need of the $1.8 billion analysts had expected, in keeping with StreetAccount.
In the course of the previous quarter ended May 31, Nike saw China sales jump 16% in comparison with the year-ago period. However the numbers were against easy comparisons since the region was still under Covid-related lockdown orders through the prior 12 months.
While Nike stays bullish on China, the region’s economic recovery has thus far been a mixed bag. Following a sluggish July, retail sales picked up through the month of August to rise 4.6% in comparison with the prior 12 months, beating expectations of a 3% growth forecast by Reuters.
“We feel good concerning the market there and our position,” said CEO John Donahoe, adding he’s traveled to China twice within the last 4 months. “Frankly, a pair things stand out. One, sport is back in China, you may just feel it, and that provides us great confidence concerning the future and the Chinese consumer in our segment, whatever the macroeconomic outlook there.”
Nike saw sales jumps in every region besides North America, its largest market by revenue. Sales in North America fell 2% from the year-ago period to $5.42 billion, just above the $5.39 billion analysts had expected, in keeping with StreetAccount.
In Europe, the Middle East and Africa, sales were up 8% at $3.61 billion. That compared with the $3.51 billion analysts had expected. Sales in its Latin America and Asia Pacific unit got here in 2% higher at $1.57 billion, just shy of the $1.59 billion analysts had expected, in keeping with StreetAccount.
The Converse brand, alternatively, fell well in need of expectations for a second quarter in a row. Sales got here in at $588 million, down 9% in comparison with the year-ago period. Analysts had expected sales to be about $660 million, in keeping with StreetAccount.
Nike’s direct channel, which incorporates its owned stores and its digital channel, led the retailer’s growth through the quarter and was up 6% in comparison with the prior 12 months. In June, the corporate noticed that shoppers were shifting towards its stores over its digital channels, signaling consumers are getting closer to pre-pandemic shopping habits.
“We proceed to see that buyers need to connect directly and personally with our brands and the truth is, member engagement inside our direct business is up double digits versus the prior 12 months with increasing average order values,” said Friend.
“Our stores delivered an especially strong quarter with traffic up double digits from last 12 months, and members driving an increasing share of our business as consumers shifted from our digital to physical channels… Our team was nimble in transitioning inventory to capture higher full-price sales across our entire store fleet,” he said.
On the subject of its wholesale revenues, Nike’s relationship with those partners have been rocky. As the corporate has pivoted to a direct-to-consumer model, it has focused on driving sales online and in its stores on the expense of its wholesale accounts.
Nevertheless, as Nike grappled with excess inventories throughout 2023, it relied on those partners to maneuver through that merchandise. It has now restored its relationship with each Macy’s and DSW – accounts that it previously cut in favor of its DTC strategy.
Some analysts expected Nike’s wholesale revenue to be sluggish through the quarter because excess inventories have been an issue throughout the retail industry – and a few wholesalers are being more particular in what they order to avoid one other backlog.
Wholesale revenue through the quarter was flat in comparison with the year-ago period at $7 billion.
Each Donahoe and Friend made it clear to analysts that Nike is prepared to satisfy customers in all channels — including through wholesalers and directly. The retailer shouted out Dick’s Sporting Goods as one in all its key partners and noted that it’s still within the means of resetting its business with Footlocker, which has seen two quarters in a row of plunging sales and profits.
Despite the shift in the way it’s working with wholesalers, Nike insisted that direct sales will pave the approach to its future growth.
“Ultimately, we now have a segmented portfolio of strong partners across price points and channels. With no single partner representing greater than a mid-single digit of Nike’s total business,” said Friend.
“While the final word landing spot of digital and direct is not as clear, we do consider we’ll be a more direct and a more digital company, and a more profitable company,” he said. “And there is a channel mix and channel profitability opportunity that comes with that as well.”
Meanwhile, inventories fell 10% to $8.7 billion. The drop was driven by a decrease in units but offset by product mix and better manufacturing and production costs.
“On the entire, we’re very comfortable with the extent of inventory within the marketplace in relation to the retail sales that we’re seeing as we start increasing levels of wholesale sell in our second half,” said Friend.
Amid decades-high inflation rates, consumers have been pulling back on apparel and footwear. With the resumption of student loan payments looming ahead, some analysts expect those sectors to take a fair greater hit.
Jefferies conducted a survey on U.S. consumer spending and located 54% of respondents plan to spend less on apparel and accessories. Meanwhile, 46% plan to spend less on footwear, which does not bode well for Nike.
It’s still too early to gauge the impact of student loan payments on Nike. Its first quarter resulted in late August, and payments aren’t set to resume until October.
In the course of the quarter, footwear sales rose 4% to $8.4 billion, making up about 68% of Nike’s total sales. Apparel was down 1% at $3.4 billion.
Correction: Nike’s gross margin fell 0.1 percentage points. An earlier version of this story misstated that figure.