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Msg  19 of 19  at  12/21/2022 6:15:05 PM  by


Nike Stock Surges Following Earnings and Revenue Beat

Nike Stock Surges Following Earnings and Revenue Beat

It has been a tough year for Nike. The stock has plummeted nearly 40%, battered by investor concerns over slowing demand and inventory issues . But a second-quarter earnings and sales beat boosted hopes that the athletic giant's luck is changing, sending the stock higher.

Nike (ticker: NKE) posted GAAP earnings of 85 cents a share on $13.3 billion in sales. Analysts were forecasting earnings of 67 cents a share on $12.58 billion in sales for the quarter, according to FactSet.

The company also updated its guidance for fiscal 2023 to reflect the strong results. Nike is now expecting full-year revenue to grow in the low-teens on a currency-neutral basis. Foreign exchange headwinds will drag down sales by approximately 7 percentage points, however, resulting in full-year revenue growth in the mid-single digits. Previous fiscal-year guidance was for sales growth in the low- to mid-single digit range.

"We remain positive regarding the strong consumer demand we see across our portfolio brands, as well as the health of our product franchises," said CFO Matthew Friend on a call with investors.

Shares of Nike were rising more than 13% to $116.75 in premarket trading on Wednesday.

It also buoyed share prices of other athletics retailers. Under Armour (UAA) stock rose 2.2%, Lululemon Athletica (LULU) 3.5%, Dick's Sporting Goods (DKS) 2.1%, Skechers (SKX) 1.8%, and Deckers Outdoor (DECK) 1.1%.

In September, Nike said it was forced to take "decisive" action to clear overburdened inventories, an announcement that spooked the market as discounts would eat into margins. The stock shed roughly 10% and dragged down its peers in the apparel and athletics categories.

The rally after Tuesday's results suggested the company was making progress at sorting out its inventory problems. Global inventories were up 43% compared with the same time last year, a hair below last quarter's 44% inventory gain. In North America, year-over-year growth in inventory dollars decelerated from 65% in Q1 to 54% in Q2, the company said.

Perhaps more important, gross margin decreased 3 percentage points to 42.9%, largely because of bigger markdowns to get rid of excess inventory, in addition to unfavorable foreign exchange rates and elevated freight costs. Although that's still worse than investors would like, it's better than feared. Nike's previous guidance was for margins to contract between 3.5 and 4 percentage points.

The company's gross margin guidance for fiscal 2023 remains unchanged, with Nike forecasting a contraction of between 2 and 2.5 percentage points compared with the prior year, driven by ongoing markdowns.

Wall Street was cautiously optimistic heading into Nike's earnings.

"We see Nike as a must-own discretionary stock for high quality exposure to what should be the most powerful global consumer story over the next year—China reopening," wrote Credit Suisse analyst Michael Binetti in a research note last week. "Nike's two most important businesses are at or past their trough—and EPS revisions are more likely to the upside from here."

Binetti raised his price target to $122 from $110 on Thursday and reiterated an Outperform rating. He wasn't the only one—Cowen, Telsey Advisory Group, and Morgan Stanley all slightly raised their price targets ahead of Nike's earnings.

That said, there are still many potholes Nike needs to navigate going forward. Sales in China aren't likely to have completely recovered to a prepandemic level, experts say, as the reopening remains in the early stages. Indeed, sales in Greater China declined 3% yearly even as total revenue rose by 17%.

Earnings before interest and taxes in Greater China declined 10% year-over-year in the second quarter, Nike said, even while earnings in North America, EMEA, and Asia Pacific and Latin America all rose by more than 20% compared with the same quarter last year.

"We're confident in our ability to compete and win in this marketplace for the long term," said CEO John Donahoe in a call with investors.

The strong performance from North America will help assuage fears that consumers are drastically cutting down on spending. Retail sales fell 0.6% in November , the most in nearly a year , with spending down across all categories, including apparel.

If Nike's earnings are anything to go by, however, shoppers remain surprisingly resilient. Black Friday and Cyber Week performance set record highs for demand and traffic, executives said on Tuesday, painting an upbeat consumer portrait just a few days before the end of the holiday shopping season, adding to concerns that consumers are bracing for an even tougher 2023.

Nike's earnings before interest and taxes in Greater China declined 10% year over year in the second quarter, and rose by more than 20% compared with the same quarter last year in North America, EMEA, and Asia Pacific and Latin America. A previous version of this article incorrectly attributed those numbers to Nike's sales in Greater China.


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