NikeSales in China continued to decline during the holiday quarter, but the retailer beat estimates on top and bottom lines, helped by better-than-expected growth in North America and pricing changes.
Here’s how the company performed compared to Wall Street’s expectations, based on a survey of analysts by LSEG, formerly known as Refinitiv:
- Earnings per share: 77 cents versus 74 cents expected
- Revenue: $12.43 billion vs. expected $12.28 billion
Nike shares fell 5% in extended trading.
The company’s reported net income for the three-month period ended Feb. 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 costs, earnings per share would have been 98 cents, the company said.
Revenue rose to $12.43 billion, up slightly from $12.39 billion a year ago.
In North America, where demand has fluctuated, sales rose about 3% to $5.07 billion, compared with estimates of $4.75 billion, according to StreetAccount.
Meanwhile, sales in other Nike regions fell short of estimates. In China, sales reached $2.08 billion, just below the $2.09 billion expected by analysts. Revenue in the region rose 5%, but growth there has slowed as demand normalizes following Covid-19 lockdowns.
In Europe, the Middle East and Africa, revenue fell 3% to $3.14 billion, according to StreetAccount, more than the $3.17 billion expected by analysts. In China, sales rose 5% to $2.08 billion, just below the $2.09 billion expected by analysts. According to StreetAccount, sales in Asia Pacific and Latin America rose 3% to $1.65 billion, below analysts’ expectations of $1.69 billion.
As consumers pull back on spending on consumer goods like clothing and shoes, Nike has focused in recent months on what it can control: cutting costs and becoming more efficient to boost profits and protect its margins.
In December, the company announced a major restructuring plan that would cut costs by about $2 billion over the next three years. The company also lowered its revenue forecast as it warned of weaker demand in the coming quarters.
Two months later, the company announced that it would cut 2% of its workforce, or more than 1,500 jobs, to invest in its growth areas such as running, the women’s category and the Jordan brand.
Nike’s initial cost cuts, which include simplifying its assortment, reducing management levels and increasing automation, likely helped the retailer beat profit expectations in the three months ended November 30, even as the company lowered revenue estimates for missed for the second quarter in a row.
The cuts, along with “strategic pricing actions and lower ocean freight rates,” also contributed to a 1.7 percentage point increase in gross margin – the first time in at least six quarters that the company has increased its gross margin year over year.
Nike’s gross margin recovery continued during the quarter. The retailer’s gross margin increased 1.5 percentage points to 44.8%, driven by “strategic pricing actions and lower ocean freight and logistics costs.” The gains were partially offset by higher product input costs and restructuring costs, the company said.
Nike is still considered the leader in sneakers and apparel, but the category has become increasingly crowded and the retailer has had to work harder to compete. Some analysts say the range has lost focus and the company has fallen behind on innovation, giving up market share to new entrants like Hoka and On Running as well as established brands like Brooks Running and New Balance.
Last month, Nike released the Book 1, its latest basketball shoe featuring NBA star Devin Booker. But the release wasn’t well received because it “looked more like a casual sneaker.” [a] basketball shoe,” says a research note from Jane Hali & Associates.
The company is now neutral on Nike over the long term, compared to its previous positive rating, as it is unclear where the brand is headed, said senior analyst Jessica Ramirez.
She noticed that Nike has removed many products from its offering, indicating that the company is preparing to introduce new models. However, it is still unclear what exactly these changes will be.
“They already said that [those changes are] “It’s going to take some time,” Ramirez told CNBC ahead of Nike’s earnings release. “It’s a little concerning to know that they don’t have a solid plan in place yet that we know of.”
Read the full earnings release here.
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2024-03-21 21:52:58
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