Nike earnings slightly below expectations. Shares with 2,8% loss 📉

The largest global manufacturer of athletic footwear and apparel, Nike (NKE.US) reported results for its fiscal fourth quarter. Although sales in both the US and China beat market expectations, the company reported slightly lower earnings per share and margins. The market is concerned that still sizable inventories will create pressure on prices, and that economies may slow down in future quarters due to the delayed 'full' effect of interest rate hikes.

Revenues: $12.83 billion vs. $12.59 billion forecast (4.8% y/y growth)

Earnings per share (EPS): $0.66 vs $0.67 forecasts 

Net income: $1.04 billion vs. $1.44 billion y/y

Footwear sales: $8.55 billion vs. $8.25 billion forecasts (7% y/y increase)

North American sales: $5.36 billion vs. $5.28 billion forecasts (4.7% y/y growth)

Sales in China: $1.81 billion vs. $1.64 billion forecasts (16% y/y growth)

Sales in Europe: $3.35 billion vs. $3.29 billion forecasts (3% y/y growth)

Converse revenue: $586 million vs. $612.6 million forecasts 

Cash and cash equivalents: $7.44 billion vs. $7.27 billion forecasts (13% decrease y/y)

• Nike's gross margin declined 1.4% reflecting due to higher transportation and logistics costs, pressure on product promotions from inventory, and unfavorable currency movements. Pricing policies and 16% higher y/y sales in China failed to fully offset this effect. The market expects that the company's net income may suffer as the disinflationary trend continues, and a possible recession may also be reflected in lower revenues;
• At the same time, the results don't look very bad - sales grew above forecasts in all regions, with a double-digit result from China where, if a broader stimulus is implemented in the coming months, growth could also be higher due to the low base effect (last year's lockdowns). Earnings per share came in marginally below Wall Street forecasts. Analysts agree that the company although retaining momentum and a strong brand will be forced to modify some strategies.
• Directors pointed out that the current economic backdrop remains negative - highly promotional. Overpricing although attracting, the value of sales is ultimately lower. According to the directors' communique, Nike ended the fiscal fourth quarter with the same amount of unsold items but they estimate slow, single-digit y/y growth in the following months. Although the latest GDP report from the US was positive, consumers are likely to be far from 'spending euphoria' in the months ahead.

Nike (NKE.US) shares, W1 interval. Source: xStation5