Nike (NKE) Q2 2023 Earnings
Nike on Tuesday reported quarterly results that easily beat Wall Street expectations and improved its outlook, even as higher costs squeezed the company’s margins.
Shares of Nike rose more than 13% after hours on Tuesday.
Here’s how Nike fared in its fiscal second quarter compared to what Wall Street was anticipating, according to a survey of analysts conducted by Refinitiv:
- Earnings per share: 85 cents vs. 64 cents expected
- Revenue: $13.32 billion vs. $12.57 billion expected
The company reported that net income for the three-month period ended November 30 was $1.33 billion, or 85 cents per share, compared with $1.34 billion, or 83 cents per share, past year.
Nike reported revenue of $13.32 billion, up 17% from $11.36 billion a year earlier.
Considering the strong performance, Nike CFO Matt Friend said on an earnings call that the company now sees its revenue grow in the teens throughout the fiscal year.
Over the past three quarters, Nike has exceeded Wall Street expectations, but like other retailers, it has struggled with bloated inventory levels that arose from supply chain disruptions, increased consumer demand, and unpredictable transit shipping times.
Inventories rose 43% to $9.3 billion in the quarter, compared to last year. Excess merchandise led to aggressive markdowns, which helped reduce Nike’s gross margin to 42.9% from 45.9% a year ago. However, inventories were down from $9.7 billion in the prior quarter. Nike CEO John Donahoe said he believes the company has already passed its peak inventory. Gross margins are expected to decline by 2 percentage points to 2.5 percentage points next quarter as liquidation efforts continue, Friend said.
The company also saw a 10% year-over-year increase in selling and administrative expenses to $4.1 billion, driven primarily by advertising and marketing costs and investment in Nike Direct as the company continues to move away from wholesalers. . The company expects those costs to rise in high single digits next quarter as well.
While the focus on Nike Direct was largely to blame for the increase in administrative expenses, the investment paid off. Nike direct sales increased 16% in the quarter to $5.4 billion and digital sales increased 25%. For the past several quarters, wholesale revenue was flat, but increased 19% in the quarter.
Nike’s sales in China, its third-biggest market by revenue, fell 3% compared to last year, continuing a trend the retailer has been facing as the country grapples with prolonged Covid lockdowns and a slowdown. in retail spending. Total retail sales in the country fell 5.9% in November from a year earlier and sales of clothing and footwear plunged 15.6%, according to China’s National Bureau of Statistics.
After Nike’s fiscal first quarter earnings were released in September, executives said the company’s inventory had grown 65% over the last year in North America alone, and as a result, the company enacted an aggressive promotional strategy to liquidate merchandise and make way for new products. .
The plan was a key part of Nike’s strategy to shift its sales directly to consumers away from wholesalers by improving the in-store experience and enticing customers to buy directly from the company online.
On Friday, Nike announced its new “Jordan World of Flight Milan” store located in Via Torino, a famous shopping district in the Italian town known for its designer shoe stores.
The initiative reflects the steps Nike is taking to grow the company as a direct-to-consumer brand.
The store, called by the company in a press release as a “first-of-its-kind retail experience,” has an integrated members’ lounge and will include interactive shopping experiences tailored for fans of the renowned sneaker brand.
Read the company’s results statement here.