Categories Analysis, Consumer

NKE Earnings Preview: Nike likely to report mixed Q1 results

Results for the first quarter of 2024 are expected to be out on September 28, after markets close

Nike, Inc. (NYSE: NKE) ended fiscal 2023 on an unimpressive note, reporting weaker-than-expected earnings for the final months of the year when the sneaker giant’s revenues increased modestly. The company’s stock is trading at a one-year low, after making a positive start to 2023 and losing momentum as the year progressed.

Recently, NKE slipped below the $ 100 mark, mainly reflecting the squeeze on profits after the company started selling products on lower margins to reduce excess inventory. The muted sentiment can also be attributed to the slow recovery in China, which accounted for about 14% of Nike’s revenues in the most recent quarter. The stock is still trading at a premium, but it offers a buying opportunity to long-term investors.

Margin Trend

The Beaverton-based sportswear brand’s revenues increased steadily in the past decade, more than doubling during that period. There was a strong uptick in operating margin soon after the pandemic as the management followed the strategy of depending less on wholesales and going directly to customers through the e-commerce platform. However, the momentum waned since then as the company started offering discounts and doing promotional activities to improve its inventory position.

In the long term, the strength of the brand and its loyal customers should help Nike maintain stable margins. Meanwhile, cash flows recovered and gathered strength in recent quarters and Nike ended the year with around $11 billion in cash balance.  

Q1 Earnings

Nike’s first-quarter earnings report is slated for release on Thursday, September 28, after the closing bell. As per experts’ consensus forecast, the company generated a net income of $0.74 per share in the first three months of FY24, which is lower than the $0.93/share profit it earned in the same period of last year. On the other hand, it is estimated to have generated a slightly higher revenue of $13 billion in Q1.

From Nike’s fourth-quarter earnings call:

“The actions we’ve taken position us for more profitable growth moving forward. Across our business, we continue to build a marketplace that addresses how consumers want to be served, giving them what they want when they want it, and how they want it. Nike creates distinction across the marketplace by segmenting consumer experiences to drive deep direct connections with consumers and grow the marketplace. Today, in the industry, with digital and physical growth converging, we’ve accelerated investment to create a truly distinctive digital experience through our own platforms.”

Q4 EPS Misses

In the fourth quarter, earnings missed estimates for the first time in nearly three years while revenues topped expectations, continuing the recent trend. The lion’s share of Nike’s revenues come from the core Footwear division, which grew 7% in the fourth quarter, pushing up total revenues to $12.83 billion. Meanwhile, net income and earnings per share declined around 28% to $1.03 billion and $0.66 per share respectively. Sales grew in all regions, underscoring the popularity of the Nike brand across geographies. Gross margin declined 140 basis points to 43.6%.

Nike’s stock traded lower throughout Friday’s session and stayed below its 52-week average. In the past six months, it lost about 24%.

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