Nike
beat third-quarter earnings expectations, but the stock oscillated in after-hours trading as gross margins contracted.
Nike (ticker: NKE) posted earnings of 79 cents a share, topping estimates for 56 cents a share, according to FactSet.
Sales of $12.4 billion were up 14% from the same quarter a year earlier, higher than expectations for $11.5 billion.
Revenue increased across the company’s main segments, including both direct to consumer and wholesale segments.
Based on the strong third-quarter results, Nike now expects fiscal 2023 revenue to grow in the high-single digit range, up from previous guidance of mid-single digit growth.
Fourth-quarter revenue will either be flat or grow by low-single digits, below consensus estimates.
Shares of Nike jumped immediately after the report, but were off by 2.2% at $122.76 in after-hours trading on Tuesday.
Margins continue to be a problem for Nike. Gross margin decreased by 3.3 percentage points to 43.3%, pummeled by ongoing aggressive discounting activity, unfavorable exchange rates, and higher production and freight costs.
In Nike’s previous quarter, investors mostly overlooked the fact that inventory remained elevated on an annual basis, mostly because gross margins were better than feared, wrote Morgan Stanley analyst Alex Straton ahead of the report. But markets seemed less forgiving this time around.
“Investors would be willing to mostly forgive any outsize gross margin pressure in both 3Q and 4Q, so long as this yields a truly ‘clean’ inventory position headed into ’24,” she wrote.
Inventory dollars in North America grew by 14% year-over-year, executives said, a marked deceleration from the previous quarter’s 54% growth. Despite the improvement, inventory will continue to weigh on gross margins. Fiscal year gross margins are expected to decline by 2.5 percentage points, which is at the low end of the company’s previous guidance range, executives said.
Nike’s management said the company was on track to exit the 2023 fiscal year with even leaner inventory than expected
Analysts were also curious to hear more on how the company’s operations in China were unfolding. As Barron’s previously reported, Nike has a lot to gain from China, but the recovery has been a rocky one so far. China showed some signs of improvement, with Greater China revenue up 1% when adjusted for currency fluctuations despite what the company called a “challenging” December. Unadjusted revenue, however, declined 8% in the quarter.
Nike returned $2 billion to shareholders in the quarter, including dividends of $528 million and $1.5 billion in share repurchases.
And while it is still too early for Nike to give any concrete guidance about the coming fiscal year, the latest quarter’s results will help set the tone for fiscal 2024. It could be a good one for Nike, despite the macroeconomic headwinds that have made other retailers jittery.
“We have managed through cycles like this before and we will be well prepared for the volatility that is in front of us,” said Matthew Friend, Nike’s chief financial officer.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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