Nike Inc (NYSE: NKE) reported fiscal 2022 fourth-quarter earnings that declined from the similar period last year but surpassed the Street forecasts. The athletic apparel manufacturer also issued a weak 1Q 2023 outlook against the backdrop of an increase in marketing activities and continuing interruptions in China, which is a highly profitable market for the company. Furthermore, the company announced a fresh share repurchase program. The stock ended Tuesday’s trading session at $102.78, down $7.72 or 6.99%, from its prior close.
The Beaverton, Oregon-based company reported fourth-quarter revenues of $12.23 billion, a decline of 0.90% from $12.34 billion in the comparable quarter last year.
For the quarter ended May 31, 2022, the footwear maker posted a net income of $1.44 billion, or $0.90 per share, compared with $1.51 billion, or $0.93 a share, on May 31, 2021. Analysts surveyed by Refinitiv had anticipated the company would record earnings of $0.81 per share on revenues of $12.06 billion.
Gross margins for the fourth quarter fell by 80 basis points to 45%, mainly due to an increase in outdated design inventory reserves in Greater China and higher freight and logistics expenses. The reported margin missed the Street estimates of 46.60%. Notably, Nike has stated that high transportation expenses and lengthy shipping periods continue to prevail.
Nike is currently undergoing a big strategy change as the enterprise generates increasing revenue through direct sales while reducing the quantity sold through wholesale associates such as Foot Locker.
The company’s direct sales rose 7% to $4.80 billion in 4Q 2022, compared with the prior year. On the contrary, Nike’s wholesale business sales fell by 7% to $6.80 billion.
The company’s largest market, the North American region, recorded sales of $5.11 billion, down 5% on a year-over-year basis. Likewise, in Greater China, Nike’s total sales were $1.56 billion, down 19% from $1.93 billion last year.
The company’s CFO, Matthew Friend, has blamed short-term issues as the reason for the decline in profits. He justified the argument by pointing to the fact that consumer demand had surpassed inventory availability for three successive quarters. Friend also stated that the supply chain is normalizing.
Nike has been paying roughly five times the rate it shelled out before the onset of the pandemic for transferring a product from the production facility in Asia to a ship and getting it delivered to the US. Furthermore, compared with pre-pandemic times, the transit periods are roughly two weeks longer.
Looking ahead, Nike forecasts 1Q 2023 revenue growth to be between flat and slightly up, compared with last year, as China continues to reel under COVID-19 interruptions. For FY 2023, the company expects revenue to grow by low double-digits.
The CEO revealed that it has taken into account increased ocean freight costs, rises in product costs, supply chain expenses, and higher discounts while preparing the aforementioned projections.
Earlier this month, Nike’s Board approved a fresh four-year $18 billion share repurchase program. This will replace the prevailing $15 billion share repurchase program, which is scheduled to be completed in FY 2023.
The quarterly earnings beat and weak 1Q 2023 revenue growth outlook are expected to keep the stock of Nike range-bound in the short term.
The historical price chart indicates that the stock of Nike is declining after failing to stay above 133 levels. The next major support is anticipated at or near 90. Additionally, the stock is trading below its 50-day moving average, while the MACD indicator is showing a negative reading. Therefore, we anticipate the stock to remain in a downtrend in the short term.
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