Nike Earnings Narrowly Beat But NKE Stock Plunges On Soaring Inventories, Weak Margins

Nike (NKE) just beat Wall Street expectations for its first-quarter earnings report Thursday afternoon. But gross margins fell as inventories jumped, while the Dow Jones athletic apparel giant said it move aggressively to liquidate excess wares. Nike stock plunged overnight after sliding to a two-year low ahead of results.

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Nike Earnings

Expectations: For the August-ended first quarter, analysts saw Nike earnings falling 21% to 92 cents per share. Revenue was seen climbing slightly to $12.28 billion, up from $12.25 billion last summer.

Results: Nike earnings fell 20% to 93 cents a share. Revenue grew 4% to $12.69 billion.

Nike’s China sales fell 16% over the year to $1.65 billion for the period, but were still in line with consensus estimates. While North American revenue rose 15% to $5.5 billion, spurred by a 17% increase in shoe sales. The largest growth came from its European, Middle East and Africa segment, where sales increased by 23%.

However, Nike noted gross margin fell sharply vs. a year earlier to 44.3% driven by higher logistics costs, lower NIKE Direct margins from markdowns and unfavorable currency exchange rates. The overall decrease in margins was primarily driven by the North American segment, as Nike worked to liquidate excess inventory through its Direct sales and wholesale strategies. Still, North American revenue the company’s inventory spiked 44% to $9.7 billion for the quarter.

For Q2, Nike expects reported revenue to grow in the low double digits while gross margin declines 350 to 400 basis points compared to last year. That margin hit will reflect inventory liquidation efforts.

For fiscal 2023, Nike  projects to low-to-mid single digit revenue growth. It predicts gross margin to decline 200 basis points to 250 basis points, with negative foreign exchange headwinds of about $4 billion during the year.

NKE Stock

NKE stock fell 9% in overnight trade. Shares fell 3.4% to 95.33 in Thursday’s session, hitting a two year low. Nike stock is among the Dow Jones Industrial Average’s worst performers this year, tumbling around 35% through Thursday.

A New Player On The Team

On Sept. 21, Nike announced that former Intel CEO Bob Swan will join the board of directors as the Dow athletic apparel giant expands its digital sales and offerings. Swan is currently an operating partner on Andreessen Horowitz’s (a16z) growth investing team. Prior to leading Intel (INTC), Swan served as CFO of eBay (EBAY) and helped lead the spinoff of PayPal (PYPL) in 2015.

Nike CEO John Donahoe, who previously ran software giant ServiceNow (NOW), is PayPal’s chairman.

For fiscal 2022, Nike Digital sales rose 18% to $10.7 billion, up from $9.1 billion in 2021. Nike Direct, its direct-to-consumer segment, accounted for 42% of total sales in fiscal 2022.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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