Nike Inc (NYSE: NKE) reported its fiscal Q1 earnings, marking the first time in two years that the sneaker giant fell short of Wall Street expectations for revenue. Despite a miss in Nike’s first quarter earnings, Nike’s earnings and margins exceeded forecasts leading to a surge in its stock price during after-hours trading.
What could be the driving factors behind Nike shares performance FY24 and its first quarter earnings?
Nike Earnings: How Did Nike Stock Perform?
During the first quarter, Nike sales increased by 4 percent to $8.4 billion, accounting for approximately 68 percent of Nike’s total sales, while apparel sales were down 1 percent at $3.4 billion.
The sportswear giant reported a net income of $1.45 billion, equivalent to $0.94 per share, for the three-month period ending on August 31. This is compared to $1.47 billion, or $0.93 per share, during the same period the previous year. Sales for the quarter reached $12.94 billion, a 2 percent increase from the previous year but slightly below the anticipated $13.02 billion.
As per LSEG, here’s a breakdown of Nike’s performance for the first quarter of the fiscal year compared to analyst expectations.
– Earnings per share: $0.94 vs. expected $0.75
– Revenue: $12.94 billion vs. expected $13.02 billion
Investors responded positively to the earnings and margin beat, causing Nike stock to rise by approximately 8 percent in after-hours trading on Thursday. The company maintained its full-year guidance, anticipating mid-single-digit revenue growth and a gross margin expansion of 1.4 – 1.6 percent points.
During a call with analysts, Nike’s finance chief, Matthew Friend, emphasized on their cautious approach, monitoring factors like foreign currency exchange rates, holiday season consumer demand, and the second-half wholesale order book. They also expected modest improvements in markdowns for the rest of the year due to the promotional environment.
Nike Stock Price Earnings: Expectations For Q1 2024
Looking ahead to the second quarter, Nike expects slight revenue growth compared to the previous year, along with a 1-percent-point increase in gross margins.
In the first quarter, Nike’s gross margin fell slightly by 0.1 percentage points to 44.2 percent, but it exceeded analysts’ expectations of 43.7 percent. The margin dip was attributed to higher product costs and currency exchange rates, but these effects were offset by price increases, contributing to Nike’s earnings beat.
Investors have been closely watching Nike’s recovery in China, its relationship with wholesale partners, and the potential impact of the resumption of student loan payments on sales. They are also eager to see Nike’s margins recover after facing challenges such as bloated inventories, high promotions, and supply chain issues in recent quarters.
However, sales in China, while growing by 5 percent compared to the previous year, fell short of analyst expectations of $1.8 billion by ceasing at $1.7 billion. This followed a robust 16 percent growth in China sales during the prior quarter when the region was under Covid-related lockdown orders.
Nike Earnings Were Driven By Its Stock Performance FY24
Nike experienced sales growth in every region except North America, its largest revenue market, where sales decreased by 2 percent to $5.42 billion, slightly above the expected $5.39 billion. In Europe, the Middle East, and Africa, sales were up 8 percent at $3.61 billion, surpassing the anticipated $3.51 billion. Whereas sales in Latin America and the Asia Pacific unit increased by 2 percent to $1.57 billion, just shy of the $1.59 billion expected.
Nike’s direct channel, encompassing owned stores and digital sales, experienced a 6 percent growth compared to the prior year, with shoppers returning to physical stores. The company noted an increase in member engagement and higher average order values.
While Nike has been shifting toward a direct-to-consumer model, it has also been rebuilding its relationships with wholesale partners, including Macy’s and DSW, which it had previously reduced in favor of its direct strategy. Wholesale revenue for the quarter remained flat at $7 billion.
Nike’s stock earnings reflect the company’s readiness to engage with customers through various channels, including wholesalers and direct sales. Despite these adjustments, the company underlined that direct sales would lead its future growth.
In terms of inventory, Nike saw a 10 percent decrease to $8.7 billion, driven by reduced units but offset by product mix and higher manufacturing and production costs.
However, concerns about inflation and the resumption of student loan payments have led to expectations of reduced consumer spending on apparel and footwear.
To draw to a close, Nike’s fiscal first-quarter earnings exceeded expectations, overshadowing a revenue miss, with challenges in North America and China’s economic slowdown impacting results. The company continues to navigate changing market dynamics and is focused on both its direct-to-consumer and wholesale channels for future growth.
