Nike (NKE) recently outperformed Wall Street forecasts for its first-quarter earnings report, which was released Thursday afternoon. However, Nike stock (NYSE:NKE) dropped overnight after falling to a two-year low ahead of earnings.
Gross margins plummeted as stockpiles increased, and the Dow Jones sporting clothing behemoth announced it would aggressively reduce surplus inventory.
Nike Profits
Analysts expected Nike profits to decrease 21% to 92 cents per share in the first quarter that ended in August. Revenue was estimated to be $12.28 billion, up from $12.25 billion last summer.
Nike’s profits per share plummeted 20% to 93 cents. Revenue increased by 4% to $12.69 billion.
Nike’s China sales dipped 16% year on year to $1.65 billion but remained in line with market predictions. While revenue in North America increased 15% to $5.5 billion, driven by a 17% growth in shoe sales. The most significant boost came from its European, Middle Eastern, and African segments, where revenues grew by 23%.
However, Nike reported a steep drop in gross margin from a year ago to 44.3%, owing to more significant logistical costs, reduced NIKE Direct profits from markdowns, and unfavorable foreign exchange rates. The North American business was primarily responsible for the overall decline in margins, as Nike tried to dispose of surplus inventory via its Direct sales and wholesale initiatives. Nonetheless, North American sales from the company’s lists increased by 44% to $9.7 billion for the quarter.
Market Evaluation of Nike Stock
Nike forecasts reported sales to climb in the low double digits in Q2, but the gross margin will fall 350 to 400 basis points from last year. This margin erosion will be due to inventory liquidation actions.
Nike anticipates low-to-mid single-digit sales growth in fiscal 2023. It expects gross margin to fall by 200 basis points to 250 basis points this year, with negative foreign currency headwinds of around $4 billion.
In overnight trading, Nike stock (NYSE:NKE) plunged 9%. In Thursday’s session, shares plummeted 3.4% to 95.33, a two-year low. Nike stock (NYSE:NKE) has been one of the Dow Jones Industrial Average’s worst performers this year, falling nearly 35% as of Thursday.
A Newcomer to the Team
Nike said on September 21 that former Intel CEO Bob Swan would join its board of directors as the Dow sports clothing behemoth boosts its digital sales and offers. Swan is presently an operational partner on the growth investment team at Andreessen Horowitz (a16z). Swan formerly worked as CFO of eBay (EBAY) and assisted in the 2015 split of PayPal (PYPL).
Nike Digital sales increased 18% to $10.7 billion in fiscal 2022, up from $9.1 billion in fiscal 2021. In fiscal2022, Nike Direct, the company’s direct-to-consumer division, contributed 42% of total revenues.
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Author Okoro Chinedu 
