Ticker Symbol: NKE
Global fitness apparel maker Nike’s shares were trading lower this morning after the company reported sales in regions that missed investors’ outlook. Despite beating revenue and earnings analyst estimates for the fiscal fourth quarter, the company provided weak guidance for its first quarter of 2023, and announced an $18 billion four-year share buyback program, shares were off 2% in early morning trading.
Management noted in the earnings call that they expect gross margins to remain flat in the best-case scenario for the foreseeable future, and down as much as 0.5% in its worst-case scenario, despite Wall Street’s expectations that margins would improve. The company did succeed to grow revenue in fiscal 2022 which ended on May 31st, by close to 5%. Furthermore, the company has managed fallout from intense supply chain issues relatively well.
Sales in greater China fell by 20%, excluding movements in currencies, in the fourth quarter and missed expectations. But most critically, the North American top line also declined by 5% to $5.1 billion, versus the $5.2 billion expected by analysts. Footwear sales were down 6% and sports apparel sales slid 5%. Surging inflation and relatively fewer new items in the product line may have contributed to the sluggish revenue picture, especially in the U.S.
One bright spot for the company was the EMEA, or Europe, Middle East, and Africa, a region where revenue came in at $3.25 billion versus the $3 billion expected. Additionally, Asia Pacific (excluding China) and Latin America sales came in at $1.68 billion, up 15% year over year, versus the $1.57 billion modeled by analysts. Aggregate selling and administrative expenses were also held in check, totaling $4 billion, beating the average estimate of $4.1 billion.
Worryingly, the company’s inventories rose by 23% year over year to $8.4 billion primarily due to goods still in transit. Management indicated that it expects to discount some of this inventory to push new products later in the fiscal year. The company also expects discounts to revert to the historical average, relative to the calendar 2021 when discounts were limited. Nike is also pushing more towards digital sales directly from the company’s website, which could cause some short-term friction with its retail partners such as Foot Locker.
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