Nike (NKE) Q2 2023 Earnings

Nike on Tuesday reported quarterly results that easily beat Wall Street expectations, even as higher costs squeezed the company’s margins.

Nike shares rose more than 11% in after-hours trading on Tuesday.

Here’s how Nike fared in its fiscal second quarter compared to what Wall Street expected, based on a survey of analysts by Refinitiv:

  • Earnings per share: 85 cents vs. 64 cents expected
  • Revenue: $13.32 billion against an expected $12.57 billion

The company reported net income for the three months ended Nov. 30 of $1.33 billion, or 85 cents a share, compared with $1.34 billion, or 83 cents a share, a year earlier.

Nike reported revenue of $13.32 billion, up 17% from $11.36 billion a year earlier.

People walk past a store of sporting goods retailer Nike Inc. at a shopping complex in Beijing, China, March 25, 2021.

Florence Law | Reuters

Over the past three quarters, Nike has beaten Wall Street expectations, but like other retailers, was struggling with a bloated inventory levels resulting from supply chain disruptions, increasing consumer demand and unpredictable shipping times.

Inventories rose 43% to $9.3 billion in the quarter from a year ago. The merchandise glut led to aggressive markdowns, which helped push Nike’s gross margin down to 42.9% from 45.9% a year ago. However, inventories were down from $9.7 billion in the previous quarter.

The company also saw a 10% year-over-year rise in selling and administrative expenses to $4.1 billion, driven mostly by advertising and marketing spending and investments in Nike Direct as the company continues to move away from wholesalers.

Although the emphasis on Nike Direct was largely to blame for increased administrative costs, the investment paid off. Nike’s direct sales rose 16% in the quarter to $5.4 billion, and digital sales rose 25%. Over the past few quarters, wholesale revenue has been virtually flat, but increased 19% for the quarter.

Nike’s sales in China, its third-biggest market by revenue, fell 3% from last year, continuing a trend the retailer has struggled with as the country deals with ongoing Covid lockdowns and a slowdown in retail spending . Total retail sales in the country fell 5.9 percent in November from a year ago, and sales of clothing and footwear plunged 15.6 percent, according to China’s National Bureau of Statistics.

After earnings from Nike’s first fiscal quarter were launched in September, executives said the company’s inventory has grown 65% in the past year in North America alone, and as a result the company has adopted an aggressive promotional strategy to liquidate merchandise and make way for new products.

The plan was a key part of Nike’s strategy to shift sales directly to consumers and away from wholesalers by improving the in-store experience and enticing customers to shop directly from the company online.

On Friday, Nike announced its new Jordan World of Flight Milan store, located on Via Torino, a famous shopping area in the Italian area known for its designer shoe stores.

The initiative reflects the steps Nike is taking to grow the company as a direct-to-consumer brand.

The store, called a “first-of-its-kind retail experience” by the company in a news release, has a built-in members’ lounge and will feature interactive shopping experiences tailored for fans of the iconic sneaker brand.

Read the company’s earnings release here.

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