Nike beats estimates boosted by discounts, promotions; shares surge.
The American multinational firm Nike, Inc. is involved in the design, development, manufacture, marketing, and sales of footwear, clothes, equipment, accessories, and services on a global scale. The business has its headquarters in the Portland metro area, close to Beaverton, Oregon. With sales exceeding US$37.4 billion in its fiscal year 2020, it is the largest sports equipment maker and supplier of athletic shoes and apparel worldwide (ending May 31, 2020). It had 76,700 employees worldwide as of 2020. The brand alone has worth more than $32 billion in 2020, making it the most valuable brand in the sports industry. The Nike brand was previously valued at $29.6 billion in 2017. In the 2018 Fortune 500, Nike was placed 89th.
Nike Inc. surpassed earnings estimates handily on Tuesday as North American consumers hurried to stock up on sneakers and clothing before the holidays. This was the company’s highest quarterly revenue rise in more than ten years, saving one quarter.
In after-hours trading, shares of the biggest sportswear manufacturer in the world rose 13%. The Beaverton, Oregon-based company grew sales and drew in recession-averse customers by offering steeper discounts and more promotions throughout the quarter to remove surplus inventory. Wealthier consumers also maintained the pandemic-driven sales boom in sporting apparel.
On a call following the release of the business’s earnings, Nike’s finance director Matthew Friend stated that the company had made substantial progress in clearing inventory during the quarter and that merchandise for the spring season was arriving earlier and with faster delivery times.
He noted that the firm experienced record demand on Black Friday and Cyber Monday in North America. In contrast, Nike experienced its biggest Cyber Week in Europe, the Middle East, and Africa, with demand rising by 75% from the previous year.
“It does look like Nike’s situation (and the whole industry, probably) is improving because the shipping problems have mostly been fixed,” Morningstar analyst David Swartz said. “Nike’s ability to gets its product on time will help it to manage inventories, margins, and pricing better in the next few quarters,” he said.
According to Refinitiv statistics, Nike reported a profit of 85 cents per share for the second quarter that ended in November, exceeding the consensus forecast of 64 cents.
Revenue increased 17% to $13.32 billion, exceeding the $12.57 billion average projection. With the exception of a 95% increase in the fourth quarter of 2021, when retail stores had just begun to open after a year of pandemic lockdowns, that was its highest performance in 42 quarters.
Nike’s biggest market, North America, saw a 30% increase in sales, while its most lucrative market, China, saw a 3% decline due to COVID-related limitations in the nation. Since the Chinese government loosened restrictions, according to Swartz, the business climate in China has begun to improve.
However, a stronger currency increased freight and logistics expenses and more considerable markdowns to clear inventory put pressure on Nike’s profits throughout the quarter. To reach 42.9%, gross margins dropped by 300 basis points.
The business stated that compared to its earlier prediction of a low double-digit increase, it anticipated revenue growth for the current year ending May 2023 to improve somewhat too low teens on a currency-neutral basis. It didn’t give specifics.