Nike stock has shed 23% this year.
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Nike’s
first-quarter results suggest the company is pivoting away from the operational mishaps that have dragged its stock down more than 20% this year.
Its revenue rose by 2% in its fiscal first quarter from the year-ago period to $12.9 billion, narrowly missing projections for $13 billion, according to FactSet. The miss was overshadowed by the company’s stronger-than-expected earnings. Earnings of 94 cents a share handily topped consensus estimates of 76 cents a share.
Nike
also reaffirmed its full-year outlook and provided upbeat guidance for the second quarter.
“Our Q1 results reaffirm our expectation for healthy profitable growth this fiscal year,” Matthew Friend, chief financial officer, said on a call with analysts.
For the full year, Nike continues to expect revenue to grow in the mid-single digits, Friend said. Analysts are currently forecasting 4% revenue growth. Gross margins will still expand 1.4 to 1.6 percentage points, although Friend cautioned the company was planning for “modest markdown improvements” given that consumers are still looking for promotions.
Second quarter revenue growth will be up slightly compared to the prior year, the company said. The Street is projecting sales will grow by about 2%. Gross margins will expand about 1 percentage point compared to the previous year, Friend said, reflecting benefits from fewer markdowns, lower freight rates, and strategic pricing moves.
Shares of Nike rose 7.6% to $96.44 in after-hours trading Thursday. The stock is down 23% this year. Nike is a Barron’s stock pick.
Inventories were down 10% compared to the prior year this quarter, Nike said, a decline that helped to fuel optimism. It contrasts with Nike’s position a year ago, when it said gross margins would come under pressure because it was holding too many sneakers and other apparel. This quarter, gross margins fell 0.1 percentage point, driven by higher production costs and unfavorable changes in foreign exchange rates, the company said.
Another encouraging sign was that sales in China, one of the company’s largest markets, rose by 5% from a year earlier. Heading into the report, analysts had fretted that China’s sputtering economic recovery would weigh on Nike’s results. The actual sales figure of $1.74 billion was below estimates for $1.84 billion, but the fact that it increased from a year earlier was still well received by investors.
The picture looked cloudier in North America. Sales there beat expectations, but fell by 2%, lending credence to concerns the region may be headed for a broader pullback in consumer spending.
Foot Locker
(FL) and
Dick’s Sporting Goods
(DKS) both cut their full-year outlooks after disclosing lackluster second-quarter results, citing caution among consumers.
Nike’s wholesale revenue was $7 billion, flat compared to the prior year, the company said.
“Our consumer survey results indicate that U.S. consumers are likely to reduce spending ahead, with apparel and footwear being the most likely areas of pullback,” wrote Jefferies analyst Randal Konik in a note downgrading Nike stock to Hold from Buy Monday.
On Thursday, Friend said the company was closely monitoring the operating environment, including consumer demand over the holiday season. But so far, the company has seen strong back-to-school trends that outperformed the rest of the industry.
“We continue to see consumer demand for our brands and for our products to be very, very strong,” Friend added.
Write to Sabrina Escobar at [email protected]
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