Nike shares rose more than 5% in expanded trading Monday as sneaker retailers ‘financial third-quarter results of analysts’ estimates rose due to robust demand in North America.
But with enduring uncertainties surrounding inflation, a war abroad and hidden supply chains, Nike is holding out its prospects for next year until it reports fiscal fourth-quarter results.
“We are focusing on what we can control,” Chief Financial Officer Matthew Friend said at a post-earnings conference. “There are several new dynamics that create higher levels of volatility.”
Because of its global reach, Nike serves as a bit of a bellwether of how other retailers manage challenges such as rising oil prices, inflation, insane supply chains and global unrest driven by the Russian invasion of Ukraine.
Nike’s China business is also under surveillance. A boycott among Chinese consumers vis-à-vis Western brands caused Nike’s sales to be successful early last year, and it’s still in recovery mode. Nike prioritized North America, its largest market, over China during the pandemic when supply was tight.
In the third quarter, Nike said sales in North America rose 9%. Sales in Greater China, the company’s third-largest market behind its Europe, Middle East and Africa segment, fell 5% from a year earlier.
For its current fiscal year, Nike has reiterated its sales expectations to grow mid-range figures from the previous 12-month period. Analysts had increased revenue to 5.3%, according to refinitive data.
Here’s how Nike did in its fiscal third quarter compared to what Wall Street predicted, based on a survey by Refinitive analysts:
- Earnings per share: 87 cents against 71 cents expected
- Income: $ 10.87 Billion vs. $ 10.59 Billion Expected
Nike reported net income for the three-month period ended February 28, of $ 1.4 billion, or 87 cents per share, compared to $ 1.45 billion, or 90 cents per share, a year earlier. That raised earnings estimates at 71 cents per share, according to refinitive data.
Sales rose 5% to $ 10.87 billion from $ 10.36 billion a year earlier, beating analysts’ expectations of $ 10.59 billion.
The better-than-expected results have proven Nike’s ability to operate in a volatile environment, CEO John Donahoe said in a press release. “Market demand continues to go far beyond the available inventory supply,” he added.
Friend told analysts Nike’s revenue growth would have been even stronger over the holiday season if Nike had enough goods on hand to meet shoppers’ demand. All of its factories in Vietnam are now operational, he said, following pandemic-driven shutdowns that halted production.
Transportation times, however, remain high, especially in North America. Friend said Nike has increased its buying time lines to have enough products on the shelves for later this fall.
Since Feb. 28, Nike said its inventories total $ 7.7 billion, up 15% from a year earlier, in part due to continuous supply chain disruptions that have extended transit times, the company said. The inflated inventory levels were partially offset by robust consumer demand, it said.
Nike’s gross margin rose slightly to 46.6% from 45.6% the year before, thanks to more full-price sales.
Nike has increasingly moved its business from wholesalers and instead sells more goods directly to consumers. Foot Locker, for example, recently said it would lose a percentage of Nike merchandise in the coming years. In turn, Nike has invested heavily in its website and flagship stores to win sales.
To be on the safe side, Donahoe said Monday night that Foot Locker remains a “big and important partner” for Nike. Going forward, Foot Locker will have a prominent role in Nike’s business as a wholesaler with a focus on basketball and kids, he said.
At this point, Nike has noticed that it is ready to communicate the “big account pivots” to all of its wholesale partners.
Nike’s wholesale revenue in the third quarter fell 1%, while sales sales rose 14% year-on-year as shopper traffic “normalized”, the company said.
Nike’s digital sales in the last quarter increased 19% year-over-year, driven by 33% growth in North America. Donahoe told analysts about the winning call that Nike’s presence in the so-called digital metaverse will continue to grow, through its connection with Roblox as well as its acquisition of virtual sneaker marker RTFKT.
As the market closed on Monday, Nike shares fell 22% this year.
Find Nike’s full earnings press release here.
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