nike

Nike stock (NYSE: NKE) is trading sharply higher in US premarkets today. The company released its earnings for the fiscal second quarter of 2023 yesterday and beat on both the topline and the bottomline.

Nike reported revenues of $13.3 billion in the quarter that ended in November. The sneaker giant’s revenues increased 17% YoY. On a currency-neutral basis, its revenues rose a whopping 27% and the metric easily surpassed analysts’ estimate of $12.57 billion.

Looking at the different sales channels, Nike’s Wholesale revenues increased 19% while Direct sales rose 16% to $5.4 billion. Its online sales soared 25% in the quarter. Over the last couple of years, Nike has been aggressively focusing on online sales while lowering its reliance on wholesale sales which are invariably low margins.

The company’s gross margin meanwhile contracted by 300 basis points in the quarter. Its net income was $1.3 billion in the quarter which is similar to the last year. Its EPS increased 2% YoY to 85 cents and was ahead of the 64 cents that analysts were expecting.

Nike stock is up double digits in US premarkets today. The price action is in stark contrast to the previous quarter when the company spooked markets with its earnings and guidance.

Nike Stock Surges on Q2 Fiscal 2023 Earnings Beat

Commenting on the earnings, Nike CEO John Donahoe said, “NIKE’s results this quarter are a testament to our deep connection with consumers.”

He added, “Our growth was broad-based and was driven by our expanding digital leadership and brand strength. These results give us confidence in delivering the year as our competitive advantages continue to fuel our momentum.”

Notably, there have been concerns over the demand for Nike products amid the slowdown in key markets of North America, Europe, and China. The company’s CFO Matthew Friend tried to downplay demand concerns. He said, “Consumer demand for NIKE’s portfolio of brands continues to drive strong business momentum in a dynamic environment.”

Meanwhile, Nike is facing inventory issues and is left saddled with excess inventory on its balance sheet and has had to write off some of that. At the end of the quarter, the company had $9.3 billion worth of inventory which is 43% higher than the corresponding period last year, it has come down from $9.7 billion in the previous quarter.

Nike Says It is Past the Peak in Inventory

During the earnings call, Donahoe said, “We believe the inventory peak is behind us as actions we’re taking in the marketplace are working.” The company added that the composition of inventory is improving and its apparel inventory units and apparel closeout unit in North America are down sharply.

Nike sees the metaverse as a major opportunity and already has a presence on the metaverse. Companies like Nvidia also see the metaverse as a key growth driver. There is a list of stocks that are a play on metaverse.

China’s Slowdown is Another Headwind for US Companies

China’s slowdown has negatively impacted US companies like Apple and Nike. In the fiscal second quarter, Nike’s sales in Greater China rose 6% in the quarter without accounting for adverse currency movements.

The company said that its sales on China’s Singles Day in November were strong and outperformed the industry.

Notably, overall, retail sales during this year’s Singles Day were tepid in China. Alibaba did not release the sales numbers for its Singles Day and only said that sales were similar to the previous year.

Last month, Alibaba increased the size of its stock buybacks by $15 billion. Companies usually buy back their shares when they find their stocks undervalued. We have a guide on how investors can buy cheap stocks like Alibaba.

Meanwhile, despite the structural slowdown in China and growing US-China tensions, Nike is bullish on its outlook in the market. A section of the market, however, believes that US-China rivalry is a threat for companies like Apple and Nike which get a big chunk of their revenues from the country.

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