Nike (NKE) shares leaped higher in pre-market trading after the sports apparel giant posted stronger-than-expected third quarter profits and said supply chain snarls that had limited U.S. inventories were largely behind it.
Nike earned 87 cents per share for the three months ending in February, a 3.3% decline from last year but well ahead of the Street consensus forecast of 71 cents. Group revenues climbed 5% to $10.87 billion, Nike said, thanks to solid demand in the United States that offset an 8% slump in Covid-hit China.
Looking into the final months of its financial year, Nike said that, with all of its Vietnam-based factories up-and-running, "we're going to start seeing an improved flow of supply" into north American markets, even as shipping times remain elevated owing to domestic transport issues, thanks to overall demand that is 'significantly' exceeding inventory levels.
"Marketplace demand continues to exceed available supply as inventory supply begins to normalize in the fourth quarter, against the context of a healthy pull market, setting the foundation for another year of strong growth," CFO Matthew Friend told investors on a conference call late Monday. "We are focused on what we can control while there are several new dynamics creating higher levels of volatility."
"As a result, we will provide more specific financial guidance for fiscal '23 during our fourth quarter earnings call," Friend added.
Nike shares were marked 6.4% higher in early Tuesday trading to change hands at $138.35 each, a move that would trim the stock's year-to-date decline to around 16.1%.
North American sales were up 9% to $3.88 billion, Nike said, thanks to its ongoing direct-to-consumer push, and while China sales fell 8% from last year, the decline was significantly better than expected and still generated a solid top line of $2.16 billion.
Equipment sales were up 36% from last year, apparel was up 12% and branded footwear rose 5%.
"In total, the quarter was positive, with a strong sequential acceleration across Nike’s business—and with many of the biggest “wall of worry” macro components improving in the quarter," said Credit Suisse analyst Michael Binetti.
"The Implied (fourth quarter earnings) guidance is very wide and lack of FY23 guidance still needs to be de-risked on the fourth quarter call, but in total, we were very encouraged by Nike’s ability to operate through what was most likely the toughest macro quarter since COVID started," he added.
