Nike (NKE) Q2 2023 earnings

Nike's gross margins will improve early next year, says BMO's Simeon Siegel

Nike on Tuesday reported quarterly results that easily beat Wall Street expectations while raising its outlook as the company touted its success in cleaning up its large inventory pile.

Nike shares rose more than 10% after hours on Tuesday.

Here’s how Nike did in its fiscal second quarter compared to what Wall Street was expecting, according to a survey of analysts by Refinitiv:

  • Earnings per share: 85 cents vs. 64 cents expected
  • Revenue: $13.32 billion vs. $12.57 billion is expected

The company reported net income for the three months ended Nov. 30 of $1.33 billion, or 85 cents a share, compared with $1.34 billion, or 83 cents a share, a year before

Nike reported revenue of $13.32 billion, up 17% from $11.36 billion a year earlier.

Given the strong performance, Nike CFO Matt Friend said on an earnings call that the company now sees its revenue grow for the full fiscal year.

Over the past three quarters, Nike has beaten Wall Street expectations, but like other retailers, it has struggled with bloated inventory levels that arose from supply chain disruptions, increased consumer demand and Unpredictable shipping times in transit.

Inventories rose 43% to $9.3 billion in the quarter, compared to a year ago. The glut of merchandise led to aggressive markdowns, which helped push Nike’s gross margin to 42.9% from 45.9% a year ago. However, inventories declined from $9.7 billion in the previous quarter. Nike CEO John Donahoe said he believes the company has already exceeded its maximum inventory. Gross margins are expected to decline two percentage points to 2.5 percentage points next quarter as liquidation efforts continue, Friend said.

The company also saw a 10% year-over-year increase in selling and administrative expenses to $4.1 billion, primarily led by advertising and marketing costs and the investment in Nike Direct as the company continues to move away from wholesalers . The company expects those costs to also increase in the high single digits next quarter.

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While the focus on Nike Direct was largely to blame for increased administrative expenses, the investment has paid off. Nike Direct sales rose 16% in the quarter to $5.4 billion and digital sales rose 25%. Nike executives touted record growth on the brand’s digital membership platform as a “key reason” behind the jump in online sales. Shoppers who became members were able to take advantage of several Black Friday and Cyber ​​Monday promotions.

Over the past few quarters, wholesale revenue has remained effectively flat, but increased 19% in the quarter. Nike executives said sales were stronger for wholesalers in the quarter because they finally had inventory available to sell after supply chain constraints.

Nike’s sales in China, its third-biggest market by revenue, fell 3% compared with last year, continuing a trend the retailer has been grappling with as the country grapples with persistent lockdowns of Covid and a slowdown in retail spending. Overall retail sales in the country fell 5.9 percent in November from a year ago, and sales of clothing and footwear fell 15.6 percent, according to China’s National Bureau of Statistics.

After Nike’s fiscal first-quarter earnings were released in September, executives said the company’s inventory had grown 65% over the past year in North America alone, and as a result, the company enacted an aggressive promotional strategy to liquidate merchandise and make way for new ones. products

The plan was a key part of Nike’s strategy to move its sales directly to consumers and away from wholesalers, improving the in-store experience and attracting customers to buy directly from the company online.

On Friday, Nike announced its new “Jordan World of Flight Milan” store located in Via Torino, a famous shopping district in the Italian city known for its designer shoe stores.

The initiative reflects the steps Nike is taking to grow the company as a direct-to-consumer brand.

The store, called “the first retail experience of its kind” by the company in a press release, has an integrated members lounge and will feature interactive shopping experiences tailored for fans of the well-known sneaker brand.

Read the company’s earnings release here.

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