NikeThe retailer's sales in China continued to slow during the holiday quarter, but the retailer beat estimates on profit and loss, helped by better-than-expected growth in North America and price changes.
Here's how the company will perform in the third quarter of fiscal 2024 compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG, formerly known as Refinitiv:
Earnings per share: 77 cents vs. 74 cents expected Revenue: $12.43 billion vs. $12.28 billion expected
The company's reported net income for the three-month period ending February 29 was $1.17 billion, or 77 cents per share, compared with $1.24 billion, or 79 cents per share, a year earlier. Excluding 21 cents per share related to restructuring charges, earnings per share would have been 98 cents, the company said.
Sales rose to $12.43 billion, up slightly from $12.39 billion the previous year.
In North America, where demand was unstable, sales rose about 3% to $5.07 billion, compared to estimates of $4.75 billion, according to StreetAccount.
Meanwhile, sales in the rest of Nike's regions came in below estimates. In China, sales reached $2.08 billion, slightly below analysts' expectations of $2.09 billion. Revenues in the region rose by 5%, but growth there slowed as demand returned to normal after the closures imposed by the Corona virus.
In Europe, the Middle East and Africa, revenue fell 3% to $3.14 billion, worse than the $3.17 billion that analysts had expected, according to StreetAccount. In China, sales rose 5% to $2.08 billion, slightly below analysts' expectations of $2.09 billion. Sales in Asia Pacific and Latin America rose 3% to $1.65 billion, below analysts' expectations of $1.69 billion, according to StreetAccount.
Nike shares rose about 5% after its report, but later fell as much as 7% after it issued its guidance for the current quarter and fiscal 2025.
Excluding restructuring charges, the company reiterated its sales outlook for fiscal 2024, and said it expects revenue to grow 1%, in line with expectations of 1.1%, according to LSEG. For the current quarter, it expects revenue to rise slightly, compared to estimates of up to 2%, according to LSEG.
Nike expects gross margins to grow by 1.6 to 1.8 percentage points, helped by “strategic price increases, lower ocean shipping rates, lower product input costs and improved supply chain efficiency,” CFO Matthew Friend told analysts.
The improvements were offset by higher write-downs and lower interest from Nike's channel mix, along with headwinds in the foreign exchange market, Friend said. These mix shifts are related to changes in how often consumers shop online versus in stores or with Nike's wholesale partners.
For the full year, it expects gross margins to grow about 1.2 percentage points, less than the 1.4 to 1.6 percentage points that analysts expected, according to StreetAccount.
For fiscal 2025, Nike expects revenue and profits to grow from the previous year, but it did not specify how much growth. Analysts had expected revenue to reach 5.6%, according to LSEG.
Friend said Nike “prudently plans” for revenue in the first half of fiscal 2025 to decline to single digits, reflecting a “weak macro outlook around the world.”
As consumers pull back on spending on discretionary items like apparel and shoes, Nike has spent the past few months focusing on what it can control: cutting costs and becoming more efficient so it can turn a profit and protect its margins.
In December, it announced a broad restructuring plan to cut costs by about $2 billion over the next three years. It also lowered its sales guidance as it warned of weak demand in the coming quarters.
Two months later, it said it would cut 2% of its workforce, or more than 1,500 jobs, so it could invest in its growth areas, such as running, the women's category and Jordan Brand.
Nike's early steps in cost cuts, which involve simplifying its assortment, reducing layers of management and increasing automation, likely helped the retailer beat earnings expectations in the three months ended Nov. 30, even as it missed sales estimates for the second straight quarter. .
The cuts, along with “strategic pricing actions and lower ocean freight rates,” contributed to a 1.7 percentage point increase in gross margin — the first time the company has seen an increase in gross margin compared to the previous year in at least six quarters.
Nike's gross margin continued to rebound during the quarter. The retailer's gross margin grew 1.5 percentage points to 44.8%, driven by “strategic pricing actions and lower ocean freight and logistics costs.” The company said the gains were partially offset by higher product input costs and restructuring charges.
Nike is still considered a market leader in athletic shoes and apparel, but the category has become more crowded and the retailer has had to work harder to compete. Some analysts say its portfolio has lost focus, and they say the company has fallen behind on innovation, giving up market share to new entrants like Hoka and On Running, as well as legacy brands like Brooks Running and New Balance.
Last month, Nike launched the Book 1, its latest basketball shoe with NBA star Devin Booker. But the release wasn't well received because it “looked like a casual sneaker rather than a basketball shoe,” according to a research note from Jane Hali & Associates.
Senior analyst Jessica Ramirez said the company is now neutral on Nike in the long term, compared to its previous positive rating, because it is unclear where the brand is headed.
I've noticed that Nike has removed a lot of products from their offerings, which indicates that they are preparing to bring in new styles. But it's still unclear exactly what these changes will look like.
“They did say (these changes) would take some time,” Ramirez told CNBC before Nike's earnings call. “It's a little concerning to know that they don't have a solid plan that we know of yet.”
Read the full earnings release here.
