Nike (NKE) Earnings Q1 2024

A shopper leaves a Nike store in the Magnificent Mile shopping district on December 21, 2022 in Chicago.

Scott Olson | Good pictures

Nike on Thursday reported earnings that fell short of Wall Street’s sales expectations for the first time in two years, but it beat revenue and gross margin estimates.

Here’s how the sneaker giant fared in its fiscal first quarter compared to what Wall Street expected, based on a survey of analysts at LSEG, formerly known as Refinitiv:

  • Earnings per share: 94 cents versus 75 cents expected
  • Revenue: $12.94 billion versus $12.98 billion expected

The company’s net income for the three months ended Aug. 31 was $1.45 billion, or 94 cents per share, compared with $1.47 billion, or 93 cents per share, a year earlier.

Sales rose to $12.94 billion, up 2% from $12.69 billion a year earlier. According to LSEG, revenue for the quarter was just shy of analysts’ expectations of $12.98 billion.

Shares of Nike rose about 2% in extended trading Thursday.

Investors are laser-focused on Nike’s recovery in China, its relationship with its wholesale shareholders and how the resumption of student loan payments will affect sales.

They are eager to see Nike’s margins rebound after inventory, heavy advertising and supply chain woes contributed to lower profits in the past few quarters.

For the quarter, Nike’s gross margin fell about 1 percentage point to 44.2%, but that was higher than the 43.7% analysts were expecting, according to the Street Account. The company attributed the gross margin decline to higher product costs and currency exchange rates, but those trends were offset by price increases, which contributed to the earnings beat.

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According to StreetAccount, sales in China were up 5% from a year earlier to $1.7 billion.

In the previous quarter ended May 31, Nike China’s sales rose 16% from a year earlier. But the numbers defy easy comparisons as the region was under Covid-related lockdown orders in the previous year.

While Nike continues to make progress in China, the region’s economic recovery has so far been a mixed bag. Retail sales rose 4.6% in August from a year earlier, beating Reuters expectations for 3% growth, following a sluggish July.

Nike saw sales rise in every region except North America, its largest market by revenue. Sales in North America fell 2% from a year earlier to $5.42 billion, according to StreetAccount.

Sales in Europe, the Middle East and Africa rose 8% to $3.61 billion. That compares with the $3.51 billion analysts were expecting. According to StreetAccount, sales in its Latin America and Asia Pacific division rose 2% to $1.57 billion, just shy of the $1.59 billion analysts were expecting.

On the other hand, the Converse brand fell short of expectations for the second quarter in a row. Sales were $588 million, down 9% compared to the prior-year period. Analysts had expected sales to be around $660 million, according to the Street Account.

As for its overall revenue, Nike’s relationship with those partners has been rocky. As the company pioneers a direct-to-consumer model, it focuses on driving sales online and in its stores at the expense of its wholesale accounts.

However, as Nike struggled with excess inventory throughout 2023, it relied on those partners to move merchandise. It has now restored its relationship with both Macy’s and DSW, accounts it previously cut in favor of its DTC strategy.

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Some analysts expected Nike’s overall earnings to be sluggish this quarter, as excess inventory is a problem across the retail industry — and some wholesalers are being specific about their orders to avoid another setback.

Total sales revenue for the quarter was $7 billion compared to a year ago.

Meanwhile, inventories fell 10% to $8.7 billion. The decline was due to fewer units, but was offset by product mix and higher production and manufacturing costs.

Amid decades of high inflation rates, consumers are pulling back on apparel and footwear. As student loan payments resume, some analysts expect those sectors to take an even bigger hit.

Jefferies conducted a survey on US consumer spending and found that 54% of respondents plan to spend less on clothing and accessories. Meanwhile, 46% plan to spend less on footwear, which doesn’t bode well for Nike.

It may be too late to gauge the impact of student loan repayments on Nike. Its first quarter ended in late August, and rates aren’t set to resume until October.

In the quarter, footwear sales rose 4% to $8.4 billion, accounting for 68% of Nike’s total sales. Apparel was down 1% to $3.4 billion.

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