Nike runs past earnings estimates despite slumping sales in China
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Nike (NYSE:NKE) shares gained modestly in Monday’s extended session after reporting a beat on top and bottom lines for the fiscal fourth quarter.
The Beaverton, Oregon-based footwear and apparel company notched $0.90 in EPS against $12.2B in revenue for the quarter. Analysts had anticipated $0.82 and $12.1B, respectively. A key bright spot cited by management was the direct to consumer business that was bolstered by a 7% boost in revenue.
“In this dynamic environment, NIKE's unrivaled strengths continue to fuel our momentum,” CFO Matt Friend said. "Two years into executing our Consumer Direct Acceleration, we are better positioned than ever to drive long-term growth while serving consumers directly at scale."
However, on the key issues anticipated by Wall Street in terms of sales in China, supply chain issues, and exposure to inflation and foreign exchange impacts the company had less optimistic reports.
In line with declines noted ahead of the release by Pou Sheng, a key China-based retail partner for both Nike (NKE) and Adidas, sales in the important region fell by 19%, led by a 39% collapse in apparel sales amid lockdowns.
However, in terms of expectations amid severe lockdowns, a 19% drop was not viewed as a disaster. In fact, the steep fall was actually much better than some more bearish analyst estimates ahead of the report. More surprisingly, sales in North America also fell 5% as apparel sales also decelerated sharply.
As far as the anticipated supply chain problems, inventories grew 23% to $8.4B. The company’s press release cited “elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions, partially offset by strong consumer demand” for the jump.
Finally, inflation and foreign exchange impacts impacted results negatively as gross margin fell 80 basis points to 45% on higher freight and logistics costs, while a stronger dollar was cited for a 4% gap between currency neutral sales and the reported figures. The elevated costs were noted as particularly problematic in the greater China region where they added to “higher inventory obsolescence” in the quarter.
Elsewhere, the board approved a new four-year share repurchase program that will allow management to buy back $18B in common stock. The new program replaces a prior $15B share repurchase program that was due for termination in fiscal 2023.
Read more on key catalysts expected for the rest of the week.