Nike released FY second-quarter results after the market close Tuesday that easily beat Wall Street’s expectations, but higher costs squeezed the company’s margins again. NKE raised its outlook, announcing it was saw a pleasing inventory decline from the previous quarter. Nike Direct sales were up 16% for the quarter at $5.4 billion and digital sales were up 25%. Shares of Nike rose more than 12% after hours in response. Tough comps in China, its third biggest market by revenue have hampered the sportswear giant. Chinese operations sales, hurt by Beijing’s Covid-19 restrictions, dropped by 3% compared to last year.
Nike Inc NYSE: NKE Reported Earnings After Close Tuesday
$0.85 beat $0.64 EPS and $13.32B Beat $12.57 Billion Revenue Forecast
Nike Earnings Fiscal Q2 23 Earnings
- Net income was $1.33 billion, or 85 cents per share, compared with $1.34 billion, or 83 cents per share, a year earlier.
- Adj EPS: 85 cents vs. 64 cents expected
- Revenue: $13.32 billion vs. $12.57 billion expected, up 17% from $11.36 billion a year earlier.
- NIKE Direct sales Up 16% on a reported basis and up 25 percent on a currency-neutral basis for the quarter at $5.4 billion.
- NIKE Brand Digital sales increased 25% on a reported basis, or 34 percent on a currency-neutral basis
- Wholesale revenues grew 19 percent on a reported basis and 30 percent on a currency-neutral basis
- Regions: A drop in revenue in Greater China (-3%) was more than offset by gains in Asia Pacific & Latin America (+19%), North America (+30%) and Europe, Middle East, & Africa (+11%). Footwear sales were up 25% to $8.50B, while apparel sales rose 4% to $3.8B.
- Revenues for Converse were $586 million, up 5 percent on a reported basis and up 12 percent on a currency-neutral basis, led by double-digit growth in North America, partially offset by declines in Asia.
- Revenues for the NIKE Brand were $12.7 billion, up 18 percent on a reported basis and up 28 percent on a currency-neutral basis, with strong growth across all geographies and channels.
- Gross margin decreased 300 basis points to 42.9 percent “to higher markdowns to liquidate inventory, particularly in North America; continued unfavorable changes in net foreign currency exchange rates; elevated freight and logistics costs and increased product input costs; partially offset by strategic pricing actions.”
- Selling and administrative expense increased 10% to $4.1 billion.
- Cash and equivalents and short-term investments were $10.6 billion, down approximately $4.5 billion from last year, as free cash flow was offset by share repurchases and cash dividends.
- Inventories for NIKE, Inc. were $9.3 billion, up 43 percent compared to the prior year period, driven by an increase in units from lapping prior year supply chain disruption, as well as higher input costs.
- Dividends of $480 million, up 10 percent from the prior year.
- Share repurchases of $1.6 billion, reflecting 16.5 million retired shares as part of the four-year, $18 billion program approved by the Board of Directors in June 2022. As of November 30, 2022, a total of 19.0 million shares have been repurchased under the program for a total of approximately $1.9 billion.
- NKE 103.18 ▼ -4.44 (-2.63%) today
- NKE 116.25 ▲ 13.04 (12.63%) After Hours
- Earnings Insight: Nike has exceeded EPS estimates in 9 straight quarters until last quarter, missing revenue expectations twice in that span.
“NIKE’s results this quarter are a testament to our deep connection with consumers,” said John Donahoe, President and CEO, NIKE, Inc. “Our growth was broad-based and was driven by our expanding digital leadership and brand strength. These results give us confidence in delivering the year as our competitive advantages continue to fuel our momentum.”
What to Watch for in Nike Earnings
- Sales in North America
- Sales in China
- Sales at the Converse brand
- Sales for the Nike brand, footwear sales, apparel and equipment revenue
- Digital sales
- Expenses for shipping and returns
- Nike’s margins
China though is a source of weakness for NKE. Heading into this earnings report, there are concern that its business there took more hits as lockdowns spread across the country. There is hope with its brand strength.
Another factor is Russia. Nike announced plans to permanently exit Russia after halting its online operations in the region and closing its stores in March following the invasion of Ukraine. Russia has become economically isolated since then and is currently working on legislation to punish foreign companies that leave its soil.
Nike is one of a number of major brands pulling the plug on Russia. Cisco announced plans to leave, and McDonalds, Renault, and Starbucks have all pulled out.
Nike in the Metaverse
Last year Nike announced it bought virtual sneaker company RTFKT for an undisclosed amount, making a bet on the metaverse. Formed in 2020 by Benoit Pagotto, Chris Le and Steven Vasilev, RTFKT also makes NFT collectibles and memes.
“This acquisition is another step that accelerates Nike’s digital transformation and allows us to serve athletes and creators at the intersection of sport, creativity, gaming and culture,” Nike Chief Executive Officer John Donahoe said in a statement at the time.
Nike had been filing trademarks indicating its intent to make and sell virtual Nike-branded shoes and apparel.
“We’ll invest … to deliver next-generation experiences that involved RTFKT and Nike brands,” said Donahoe on an earnings call.
Nike is based in Beaverton, Oregon. NIKE, Inc. includes the Nike, Converse, and Jordan brands. Nike, Inc. is involved in the design, development, manufacturing and worldwide marketing and sales of apparel, footwear, accessories, equipment and services. Nike is the world’s largest supplier of athletic shoes and apparel and a major manufacturer of sports equipment
Nike sponsors many high-profile athletes and sports teams around the world, with the highly recognized trademarks of “Just Do It” and the Swoosh logo (which represents the wing of the Greek goddess Nike).
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