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Nike Stock fells after sales fell short of market expectations

Nike Inc. (NKE) reported better-than-expected first-quarter results on Thursday, but sales fell short of analysts’ expectations, suggesting that supply-chain issues might affect revenue predictions moving into the Christmas season.

Nike Stock

Image: MarketWatch

Nike earnings

Nike, in fact, lowered its full-year sales projection to a “mid-single-digit” increase from a previous expectation of double-digit rises, citing supply chain difficulties affecting goods transit from Asia to North America.

Nike reported earnings of $1.16 per share for the three months ended in August, a 22.1 percent increase over the same time last year and just ahead of the Street consensus expectation of $1.11 per share. Nike reported a 16 percent increase in group revenues to $12.2 billion, narrowly missing analysts’ forecasts of $12.465 billion.

Nike said that sales in China increased 11% year over year to $1.982 billion, while sales in North America, Nike’s largest market, increased 15% to $4.879 billion.

“Led by margin improvement in our NIKE Direct business, a larger mix of full-price sales, and positive adjustments in foreign currency exchange rates,” gross profit margins increased 170 basis points to 46.5 percent.

“NIKE’s excellent results this quarter demonstrate our deep customer relationships, unwavering innovation pipeline, and digital edge that feeds our brand momentum,” stated CEO John Donahoe. “We have the appropriate strategy to handle macroeconomic changes since we create value via our unwavering commitment to fuelling sport’s future.”

Stock

Nike shares fell 3.7 percent in extended-hours trading after the results announcement, indicating a Friday opening bell price of $153.66 a share, bringing the stock’s six-month gain to around 16 percent.

As of Thursday’s market closing, Nike shares were up nearly 13% year to date, but down around 9% from an all-time high hit in early August. That’s when discussion about supply chain congestion began to gain traction.

Revised forecasts

During the summer, two Nike suppliers in Vietnam, Eclat and Quang Viet, intended to decrease output to satisfy COVID standards due to an increase of Delta infections in the region. According to Nike’s 10-K filing with the Securities and Exchange Commission, factories in Vietnam produced half of its shoes and 28% of its clothing in fiscal 2020.

Nike reported inventory levels of $6.7 billion at the end of the most recent quarter, down marginally from $6.9 billion the year before. Demand is expected to surpass supply for the remainder of this fiscal year, according to the business. In fiscal 2023, however, it expects to revert to more typical inventory levels.

Following a mixed first-quarter results report, Nike has altered its prediction. As demand in North America slowed, it fell short of revenue projections. However, the firm increased earnings by selling more items at full price to customers.

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