Nike hiked its full-year revenue guidance late Tuesday after smashing earnings estimates for its fiscal third quarter, but warned on margins. NKE stock fell early Wednesday.
Dow Jones footwear and apparel giant Nike is a bellwether for the global consumer economy. Its results wrap up the reporting season for Dow Jones Industrial stocks.
Nike Earnings
Estimates: Analysts polled by FactSet expected Nike to post a 36% EPS decline, year over year, to 56 cents. Revenue was seen rising nearly 6% to $11.482 billion.
Results: Nike earnings fell 9% to 79 cents a share, a far less-than-feared decline. Revenue jumped 14% to $12.39 billion, also better than expected.
Nike Direct sales rose 17% to $5.3 billion.
Gross margins fell by 330 basis points, to 43.3%, weaker than some forecasts. That was due to higher markdowns to liquidate inventory, and other factors. Despite the liquidations, inventories rose 16% vs. a year ago to $8.9 billion, due to higher input and freight costs, the company said. However, the company is "making great progress on inventory, with our inventory dollars down sequentially vs. last quarter," Nike President and CEO John Donahoe said on an earnings call.
Cash and equivalents dropped 20% to $10.8 billion.
Outlook: Citing strong Q3 results, Nike guided fiscal 2023 revenue growth in the high single digits, up from mid single digits earlier. Wall Street was expecting a 7% revenue gain for the full year ahead of results and now expects 8.6%, FactSet shows. Analysts now estimate fiscal 2023 EPS of $3.21, a 14% decrease vs. 2022.
Late Tuesday, management said product innovation is driving strong consumer demand. But they "are closely monitoring the building pressure on consumer confidence and the uncertainties of the macro environment."
Nike warned of continuing margin pressure as it continues to reduce excess inventory with heavy discounting. But it's on track to exit fiscal 2023 with "healthy" inventory levels, CEO Donahoe said on the earnings call.
In China, Q3 revenue fell 8% to $1.99 billion, despite an end to Beijing's harsh zero-Covid policy. Outside China, revenue grew double digits across North America; Europe, Middle East and Africa; and Asia Pacific and Latin America.
NKE Stock, ONON Stock
Nike stock shed 1.3% early Wednesday to 124. Shares rose 3.6% to 125.61 in Tuesday's stock market, reclaiming the 50-day line.
Since bottoming last October, Nike shares rallied roughly 59% to their recent high at 131.31. Now NKE stock has formed a flat base with a 131.41 buy point. It's been moving sideways below its 50-day moving average as it bases.
A decisive move above the 50-day line could break Nike stock back above its down-sloping short-term trendline. That would provide a potential early entry for aggressive investors.
On Tuesday, smaller peer On Holding broke out on strong earnings and guidance.
ON Holding, a member of the prestigious IBD Leaderboard, gapped up 26% to 27.26 on Tuesday. Technically, ONON stock cleared a 24.21 cup-with-handle buy point. But the stock market is in a correction, which discourages investors from making new purchases.
The Switzerland-based provider of footwear and sports apparel nearly doubled fourth-quarter sales, year over year. On Holdings also guided "strong results in 2023," including 61% sales growth in the current quarter.
The company cited "the exceptional ongoing momentum across all regions, channels and product groups, combined with a normalization of product supply and significantly improved inventory position."
Among other shoe stocks, Foot Locker rallied 5.6% Tuesday after a 5.7% tumble Monday on weak guidance. Skechers and Deckers Outdoor gained 2.5% and 4.7%, respectively. Crocs advanced 2.6%.
Stocks rose broadly Tuesday, building on Monday's relief rally. Stock futures nudged lower early Wednesday as investors awaited a key Fed policy decision.
