Market chatter about Nike’s 9 percent stock price decline over the last month, recent high inventory levels, and 23 percent drop in market value this year had the bears out in force ahead of the company’s Q1 results yesterday. But Nike reported earnings results ahead of expectations and its senior executives vowed continued movement toward becoming a more direct, digital, and profitable company in the months ahead. In after-hours trading, Nike shares rose 8 percent.
Nike Q1 figures in brief
Nike reported a 10 percent Ebit decline in Q1 to $1.65 billion on 2 percent revenue expansion to $12.94 billion. Ebit margin dipped 200 basis points to 12.5 percent from 14.5 percent in the year-ago period and fell in all geographic regions except for North America. Average selling prices (ASPs) were up in both Footwear and Apparel in all geographies.
Net income was down 1 percent to $1.45 billion. Gross margin, expanding on an operational basis but negatively impacted by currency, fell by 10 basis points to 44.2 percent. Total inventory was down 10 percent year-over-year to nearly $8.7 billion including a double-digit drop in units.
| Nike - Income | |||
|---|---|---|---|
| Quarter ended Aug. 31 ($ million) | |||
| 2023 | 2022 | Change | |
| Revenues | 12,939 | 12,687 | 2.0% |
| Cost of sales | 7,219 | 7,072 | 2.1% |
| Gross profit | 5,720 | 5,615 | 1.9% |
| Demand creation | 1,069 | 943 | 13.4% |
| Operating overhead | 3,047 | 2,977 | 2.4% |
| SG&A | 4,116 | 3,920 | 5.0% |
| Interest expense | -34 | 13 | – |
| Other expense, net | -10 | -146 | 93.2% |
| Pre-tax | 1,648 | 1,828 | -9.8% |
| Tax | 198 | 360 | -45.0% |
| Net income | 1,450 | 1,468 | -1.2% |
| Diluted EPS | 0.94 | 0.93 | 1.1% |
| Source: Nike | |||
There are plans to accelerate wholesale sell-in again in H2 when lower freight and product costs combined with abating currency headwinds should positively impact margins.
FY24 a “turning point” say senior management
With a current FY24 outlook that calls for mid-single-digit revenue growth, modest markdown improvement over the next nine months, and 140 to 160 basis point gross margin expansion on a reported basis, Nike expects to generate high-single to low double-digit sales growth from its key, worldwide wholesale partners, including JD Sports, Zalando, Topsports, and Dick’s Sporting Goods in its home market, and its direct business to lead the overall business.
Senior management said it is confident in the brand’s current product and innovation pipeline ahead of the Paris 2024 Olympics next summer. It calls FY24 “the turning point” for driving more profitable growth.
The company is eyeing a “refreshed” portfolio of Basketball products, Running (both Performance and Lifestyle), and the next evolution of Air to spearhead sales expansion.
Women’s sales outpace growth in EMEA; retro styles gaining momentum in Greater China
EMEA reported Ebit fell by 5 percent to $930 million despite 6 percent sales growth to $3.61 billion. Footwear sales jumped by 10 percent to $2.26 billion, but Apparel sales slipped by 3 percent to nearly $1.14 billion.
Women’s sales growth outpaced the region’s expansion rate as global Football, Fitness, and Trail Running footwear revenues increased by double-digits. Store sales increased by 17 percent. Direct sales rose by 6 percent and digital sales slid by 2 percent.
| Nike - Revenues | ||||
|---|---|---|---|---|
| Quarter ended Aug. 31 ($ million) | ||||
| 2023 | 2022 | Change | ||
| North America | ||||
| Footwear | 3,733 | 3,805 | -1.9% | |
| Apparel | 1,479 | 1,494 | -1.0% | |
| Equipment | 211 | 211 | 0.0% | |
| Total | 5,423 | 5,510 | -1.6% | |
| EMEA | ||||
| Footwear | 2,260 | 2,012 | 12.3% | |
| Apparel | 1,137 | 1,153 | -1.4% | |
| Equipment | 213 | 168 | 26.8% | |
| Total | 3,610 | 3,333 | 8.3% | |
| Greater China | ||||
| Footwear | 1,287 | 1,233 | 4.4% | |
| Apparel | 401 | 374 | 7.2% | |
| Equipment | 47 | 49 | -4.1% | |
| Total | 1,735 | 1,656 | 4.8% | |
| Asia-Pacific & Latin America | ||||
| Footwear | 1,141 | 1,064 | 7.2% | |
| Apparel | 371 | 413 | -10.2% | |
| Equipment | 60 | 58 | 3.4% | |
| Total | 1,572 | 1,535 | 2.4% | |
| Global brand divisions | 13 | 14 | -7.1% | |
| Total Nike brand | 12,353 | 12,048 | 2.5% | |
| Converse | 588 | 643 | -8.6% | |
| Corporate | -2 | -4 | 50.0% | |
| Total Nike Inc. | 12,939 | 12,687 | 2.0% | |
| Total Nike brand | ||||
| Footwear | 8,421 | 8,114 | 3.8% | |
| Apparel | 3,388 | 3,434 | -1.3% | |
| Equipment | 531 | 486 | 9.3% | |
| Global brand divisions | 13 | 14 | -7.1% | |
| Total Nike brand revenues | 12,353 | 12,048 | 2.5% | |
| Source: Nike | ||||
In Greater China, despite a highly promotional marketplace, Nike realized an improvement in full-price sales as it continues to drive momentum in enthusiasm for sports. Reported market revenues increased by 12 percent to nearly $1.74 billion with Footwear sales up by 11 percent to $1.29 billion and Apparel coming in 14 percent higher year-over-year at $401 million. Direct sales rose by 10 percent as store revenues gained 12 percent. Digital sales rose by 6 percent. Reported Ebit was down by 3 percent at $525 million. The Vomero and other retro running styles are “gaining momentum” in the market and there are plans to scale up the segment in coming seasons.
In the brand’s home North American market, Q1 reported ebit improved by 4 percent to $1.43 billion despite a 1 percent drop in total revenues to $5.42 billion. The company realized strong full-price sales in the run specialty channel where it introduced the Infinity 4. Sales increased by 7 percent in both the direct and digital channels and lifted 11 percent higher in stores, fueled by new technical fleece product. Jordan Brand sales were up double-digits.
APLA reported Ebit slipped by 17 percent to $414 million despite 3 percent revenue growth to $1.57 billion. Footwear sales stepped up by 7 percent to $1.14 billion, but Apparel sales dipped by 9 percent to $371 million. Nike said the region was paced by Japan, where store traffic is returning to pre-pandemic levels, Southeast Asia, India, and Mexico where digital was up by double-digits. The brand achieved market share gains in Women’s and Kids during the period.
