Nike stock plunges in pre-market despite upbeat quarterly results

12:55 PM June 28, 2022

Nike (NYSE:NKE) stock fell more than 2% in premarket despite the athletic footwear producer reported better than expected results for its fiscal fourth quarter.

  • Company earned $0.90 per share which topped market estimates of $0.81;
  • Revenue fell 0.9% to $12.23 billion, but managed to beat analysts’ expectations of $12.13 billion; 
  • For North America, Nike revenue fell 5.0% to $5.12 billion, below Wall Street projections of $5.23 estimate. Sales for EMEA jumped to $3.25 billion and easily beat market consensus of $3.01 billion. However sales on the important Chinese market disappointed as it only stood to $1.56 billion, compared to consensus of $1.74 billion partially due to demand destruction from large-scale lockdowns;
  • Chief Financial Officer Matthew Friend said lower sales were caused by fleeting factors, while consumers' loyalty and demand for products remains strong. He pointed out that for three consecutive quarters demand has exceeded available inventory, while currently situation normalizes;
  • Gross margin  fell to 45%, below expectations of 46.7%. Inventory levels - a closely watched metric by investors - edge higher  to $8.42 billion, which represents 23% YoY increase,  well above market expectations of $7.03 billion;
  • For the first-quarter company expects that revenue will be flat to slightly up compared to prior year, as it continues to manage Covid disruption in Greater China. Full-year revenue is expected to reach low double-digits on a currency-neutral basis. Nike said challenges such as higher transportation costs and longer shipping times are persisting; 
  • Company also announced a new $18 billion stock buyback program.
  • “We continue to closely monitor consumer behavior, and we’re not seeing signs of pullback at this point in time, and so we continue to execute the strategy and the plan we have, which is working,” Friend said.
  • Still some analysts point out that rising costs of living may force consumers to pull back on buying casual goods—like sneakers or trade down to lower-priced brands. 
  • Nike is in the process of changing its strategy as the company sells more goods directly to customers while trying to reduce the amount of products sold by wholesale partners such as Foot Locker. This strategy comes with risk, that its competitors may secure additional shelf space and higher sales at wholesalers. Also ongoing supply chain problems, may cause some deliveries to be stuck in different parts of the globe or may not arrive on time, which may have a sharp impact on the company's results.

Analyst rating consensus - Moderate Buy, with average price target $142.05 Source: TipRanks

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Nike (NKE.US) stock fell over 30% this year. Currently price is approaching major support at $104.60 which coincides with 61.8% Fibonacci retracement of the upward wave launched in March 2020. Should break lower occur, downward move may deepen toward the lower limit of the triangle pattern. Meanwhile the upper limit of the formation acts as the nearest resistance. Source: xStation5

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