Nike misses on revenue for first time in two years, but stock pops as earnings, margins beat

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Nike reported revenue Thursday that fell short of Wall Street’s sales expectations for the first time in two years, but it beat on earnings and gross margin estimates, sending its stock soaring in after-hours trading.

Here’s how the sneaker giant performed during its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

  • Earnings per share: 94 cents vs. 75 cents expected
  • Revenue: $12.94 billion vs. $12.98 billion expected

The company’s reported net income for the three-month period that ended August 31 was $1.45 billion, or 94 cents per share, compared with $1.47 billion, or 93 cents per share, a year earlier.

Sales rose to $12.94 billion, up about 2% from $12.69 billion a year earlier. Revenue for the quarter was just shy of the $12.98 billion analysts had expected, according to LSEG.

Nike shares rose about 8% in extended trading Thursday.

Investors have been laser focused on Nike’s recovery in China, its relationship with its wholesale partners and how the resumption of student loan payments will impact sales. They’re also eager to see Nike’s profit margins improve after bloated inventory, high promotional costs and supply-chain woes have contributed to lower profits in the past few quarters. The company attributed the gross margin drop to higher product costs and currency exchange rates, but these trends were offset by price increases, which contributed to the earnings beat. The company attributed the gross margin drop to higher product costs and currency exchange rates, but those trends were offset by price increases, which contributed to the earnings beat.

Sales in China grew by 5% compared to the year-ago period to $1.7 billion, which fell short of the $1.8 billion analysts had expected, according to StreetAccount.

During the previous quarter ended May 31, Nike saw China sales jump 16% compared to the year-ago period. The numbers are not easy to compare because during the previous quarter ended May 31, Nike saw China sales jump 16% compared to the year-ago period. While Nike is bullish about China, so far the economic recovery in that region has been mixed. After a sluggish month in July, retail sales grew 4.6% compared with the previous year. This was above the Reuters’ forecast of a 3% increase.

Nike’s sales grew in all regions except North America, the company’s largest revenue market. Sales in North America fell 2% from the year-ago period to $5.42 billion, just above the $5.39 billion analysts had expected, according to StreetAccount.

In Europe, the Middle East and Africa, sales were up 8% at $3.61 billion. Analysts had predicted $3.51 billion. Sales in its Latin America and Asia Pacific unit came in 2% higher at $1.57 billion, just shy of the $1.59 billion analysts had expected, according to StreetAccount.

The Converse brand, on the other hand, fell well short of expectations for a second quarter in a row. Sales were $588 million, a 9% drop from the previous period. Analysts had expected sales to be about $660 million, according to StreetAccount.

When it comes to its wholesale revenues, Nike’s relationship with those partners have been rocky. The company’s shift to a direct model has seen it focus on increasing sales in stores and online, at the expense wholesale accounts. Nike relied on its wholesale partners to help it move excess inventory throughout 2023. It has now restored its relationship with both

Macy’s

and

DSW

– accounts that it previously cut in favor of its DTC strategy. Some analysts predicted that Nike’s wholesale revenues would be slow during the third quarter due to the excess inventory problem in the retail sector. Wholesalers have also been more careful about what they order, to avoid a backlog. Wholesale revenue during the quarter was flat compared to the year-ago period at $7 billion.Meanwhile, inventories fell 10% to $8.7 billion. The decline was primarily due to a drop in unit sales, which were offset by higher production and manufacturing costs and a change in product mix. Analysts expect that these sectors will be hit even harder by the return of student loan repayments. Jefferies did a survey of U.S. consumers’ spending, and 54% said they planned to spend less on clothing and accessories. Nike is not looking good as 46% of respondents plan to cut back on their footwear spending. It may be too soon to tell what impact student loan repayments will have on Nike. Its first quarter ended in late August, and payments aren’t set to resume until October.During the quarter, footwear sales rose 4% to $8.4 billion, making up about 68% of Nike’s total sales. Apparel was down 1% at $3.4 billion.

Correction: Nike’s gross margin fell 0.1 percentage points. This figure was incorrect in an earlier version.