Nike’s China sales continued to slow during its holiday quarter, but the retailer beat estimates on the top and bottom line, helped by better than expected growth in North America and price changes.
Here’s how the company performed in its fiscal 2024 third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:
Earnings per share: 77 cents vs. 74 cents expected
Revenue: $12.43 billion vs. $12.28 billion expected
The company’s reported net income for the three-month period that ended Feb. 29 was $1.17 billion, or 77 cents per share, compared with $1.24 billion, or 79 cents per share, a year earlier. Excluding 21 cents per share related to restructuring charges, earnings per share would have been 98 cents, the company said.
Sales rose to $12.43 billion, up slightly from $12.39 billion a year earlier.
In North America, where demand has been unsteady, sales rose about 3% to $5.07 billion, compared with estimates of $4.75 billion, according to StreetAccount.
Meanwhile, sales in the rest of Nike’s regions came in below estimates. In China, sales reached $2.08 billion, just below the $2.09 billion analysts had expected. Revenues in the region climbed 5%, but growth there has decelerated as demand normalizes after Covid-19 lockdowns.
In Europe, the Middle East and Africa, revenue fell 3% to $3.14 billion, worse than the $3.17 billion that analysts had expected, according to StreetAccount. In China, sales grew 5% to $2.08 billion, just below the $2.09 billion analysts had expected. Sales in Asia Pacific and Latin America rose 3% to $1.65 billion, below the $1.69 billion analysts had expected, according to StreetAccount.
Nike shares rose about 5% after its report came out, but later dropped by as much as 7% after it released its guidance for the current quarter and fiscal 2025.
Excluding restructuring charges, the company reiterated its sales outlook for fiscal 2024, and said it expects revenue to grow by 1%, in line with expectations of up 1.1%, according to LSEG. For the current quarter, it expects revenue to be up slightly, compared to estimates of up 2%, according to LSEG.
Nike anticipates gross margins will grow 1.6 to 1.8 percentage points, helped by “strategic price increases, lower ocean freight rates, lower product input costs and improved supply chain efficiency,” finance chief Matthew Friend told analysts.
The improvements are offset by higher markdowns and reduced benefits from Nike’s channel mix, along with foreign exchange headwinds, Friend said. Those shifts in mix are related to changes in how often consumers are shopping online versus in stores or with Nike’s wholesale partners.
For the full year, it expects gross margins to grow about 1.2 percentage points, below the 1.4 to 1.6 percentage point uptick that analysts had expected, according to StreetAccount.
For fiscal 2025, Nike expects revenue and earnings to grow versus the prior year, but it didn’t say by how much. Analysts had expected revenue guidance of up 5.6%, according to LSEG.
Friend said Nike is “prudently planning” for revenue in the first half of fiscal 2025 to be down low single digits, reflecting “a subdued macro outlook around the world.”
As consumers pull back on spending on discretionary items like clothes and shoes, Nike has spent the past few months focused on what it can control: cutting costs and becoming more efficient so it can drive profits and protect its margins.
In December, it announced a broad restructuring plan to reduce costs by about $2 billion over the next three years. It also cut its sales guidance as it warned of softer demand in the quarters ahead.
Two months later, it said it was shedding 2% of its workforce, or more than 1,500 jobs, so it could invest in its growth areas, such as running, the women’s category and the Jordan brand.
The early innings of Nike’s cost cuts, which involve simplifying its assortment, reducing management layers and increasing automation, likely helped the retailer beat earnings expectations in the three months ended Nov. 30, even as it missed sales estimates for the second quarter in a row.
The cuts, along with “strategic pricing actions and lower ocean freight rates,” also contributed to a 1.7 percentage point gain in gross margin — the first time the company saw its gross margin increase compared to the prior year in at least six quarters.
Nike’s gross margin recovery continued during the quarter. The retailer’s gross margin grew by 1.5 percentage points to 44.8%, driven by “strategic pricing actions and lower ocean freight and logistics costs.” The gains were partially offset by higher product input costs and restructuring charges, company said.
Nike is still considered a market leader in the sneaker and apparel space, but the category has become more crowded and the retailer has had to work harder to compete. Some analysts say its assortment has lost focus and say the company has fallen behind on innovation, giving up market share to newer entrants like Hoka and On Running, as well as legacy brands like Brooks Running and New Balance.
Last month, Nike launched the Book 1, its latest basketball shoes with NBA star Devin Booker. But the release wasn’t well received because it “looked more like a casual sneaker instead of [a] basketball shoe,” according to a research note from Jane Hali & Associates.
The firm is now neutral on Nike long term, compared to its previous rating of positive, because it’s unclear where the brand is headed, said senior analyst Jessica Ramirez.
She’s noticed that Nike has removed a lot of products from its offering, which indicates it’s preparing to bring in new styles. But it’s still unclear exactly what those changes will look like.
“They’ve already said [those changes are] going to take some time,” Ramirez told CNBC prior to Nike’s earnings release. “Its a little concerning to know they don’t have a solid plan that we know of yet.”
Source: CNBC
