Nike on Monday said demand for sneakers and sportswear largely increased in the fiscal fourth quarter, despite the Covid lockdown in China and a tougher consumer environment in the US.
But the company says challenges such as higher shipping costs and longer shipping times remain.
Shares fell about 3% in aftermarket trading, even though the company topped Wall Street’s earnings and sales.
Nike predicts first-quarter revenue to be flat, up slightly from the previous year, as it continues to manage the Covid disruption in China. It said it expects full-year revenue to grow in the low double digits on a currency-neutral basis.
Chief Financial Officer Matthew Friend said Nike has factored in increased ocean freight costs, increased product costs, supply chain investments and higher discounts into its forecast.
On a call with analysts, he said the company is “optimistic” as it heads into the new financial year. He said output has surpassed pre-pandemic levels and inventories “are flowing into our largest geographies again.”
“We continue to closely monitor consumer behavior and we see no signs of a drop in prices at this time, so we continue to execute on the strategy and plan we have in place,” he said. .
Here’s how Nike did in its fiscal fourth quarter compared to what Wall Street predicted, based on a survey of analysts by Refinitiv:
- Earnings per share: 90 cents compared to the expected 81 cents
- Turnover: 12.23 billion USD compared to 12.06 billion USD expected
The company reported net income for the three-month period ended May 31 of $1.44 billion, or 90 cents per share, compared with $1.51 billion, or 93 cents per share. stocks, a year earlier.
Revenue fell to $12.23 billion from $12.34 billion a year earlier.
Nike is in the midst of a strategic shift, as the company sells more merchandise directly to shoppers and cuts back on the quantity sold by its wholesale partners, such as Foot locker. Its direct sales grew 7% to $4.8 billion in the quarter year-over-year. Nike’s wholesale business trend is the opposite. That division’s revenue fell 7% to $6.8 billion.
In North America, Nike’s largest market, total revenue fell 5% to $5.11 billion in the fourth quarter.
In Mainland China, its sales took a bigger hit due to the lockdowns. Total revenue in the country fell 19% to $1.56 billion from $1.93 in the same period last year.
However, Friend said the drop was related to ephemeral factors, not to shopper loyalty and desire for Nike products. For three consecutive quarters, consumer demand has outstripped available inventory, he said. Now, he said, supply is finally normalizing.
However, Nike faces a complicated landscape. As the price of gas, groceries, etc. Nike’s direct selling strategy comes with risks if its competitors win more shelf space and higher sales at wholesale retailers. And as supply chain challenges continue to unfold, goods can get stuck in the wrong place or arrive too late.
The company is paying about five times the rate it paid before the pandemic to put the product in a container on a boat and ship it from Asia to the US, Friend said. He said the transit time was about two weeks longer than it was before the pandemic.
Over a three-month period, inventories rose to $8.4 billion — up 23% year-over-year — due to a longer lead time due to continued disruptions in the supply chain.
Shares of Nike closed Monday at $110.50, down 2.13%. As of the end of Monday, Nike’s stock is down about 34% so far this year. It underperformed the S&P 500 index, which is down about 18 percent over the same period. The company’s market value is $173.9 billion.
Nike said its board of directors authorized a new, four-year, $18 billion stock buyback program this month. It will replace the company’s $15 billion stock buyback program, which ends next fiscal year.