Nike (NKE) just beat Wall Street expectations for its first-quarter earnings report Thursday afternoon. The Dow Jones athletic apparel giant has faced significant headwinds in China, supply-chain issues and a strengthening U.S. dollar. Nike stock is down nearly 35% so far in 2022 and slid more than 3% by Thursday afternoon.
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In its Q4 results from June, Nike said it expected fiscal 2023 revenue to rise in the low double digits. While it expected real-dollar revenue for Q1 to only be flat to slightly up, slightly below analyst targets.
For fiscal Q4, Nike reported China revenue slumped 19% vs. a year earlier to $1.6 billion as pandemic lockdowns forced store and factory closures. Meanwhile, the dollar has continued to climb, with the greenback surging to start the current Q2.
Deutsche Bank analyst Gabriella Carbone lowered the firm’s price target on Nike stock to 123 from 130 but kept a buy rating. And Jefferies analyst Randal Konik lowered his price target on NKE stock to 130 from 155, citing declining web traffic, lower Chinese apparel and footwear sales in August, and a strengthening U.S. dollar.
Konik projects FY2023 earnings of $3.40 per share, lower than the FactSet consensus of $3.64. And Jefferies sees full-year sales of $49.3 billion, compared with overall estimates of $49.8 billion. Konik maintained a long-term buy rating based on the company’s “track record of innovation and maintaining cultural relevancy.”
The now-lowered Deutsche Bank and Jefferies targets are still well above the current NKE stock price.
Nike Earnings
Expectations: For the August-ended first quarter, analysts see Nike earnings falling 21% to 92 cents per share. Revenue is seen climbing slightly to $12.28 billion, up from $12.25 billion last summer.
Results: Nike revenue rose to $12.69 billion while earnings fell to 93 cents per share, just topping estimates.
Nike Brand revenue accounted for $12 billion of its total sales. Both Nike Brand and total revenue were up 10% year-over-year on a currency neutral basis and 4% on a reported basis.
And its NIKE Direct sales rose 8% to $5.1 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 plummeted 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, 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. The company will focus on liquidating inventories in the second quarter, and says roughly 65% of its inventory backlog in North America is currently in transit.
For fiscal 2023, the company projects to low-to-mid single digit revenue growth. And predicts gross margin to decline 200 basis points to 250 basis points, with negative foreign exchange headwinds of about $4 billion during the year.
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.
NKE Stock Analysis
NKE stock is among the Dow Jones Industrial Average’s worst performers this year, tumbling around 35% since January. Nike stock fell 3.35% on Thursday to 95.39 by market close, and continued to drop nearly 10% after hours.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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