Nike (NKE) Q2 earnings 2023

People walk past a store of sporting goods retailer Nike Inc. at a shopping complex in Beijing, China, March 25, 2021.

Florence Lo | Reuters

Nike Tuesday reported quarterly results that easily beat Wall Street expectations, even as rising costs squeezed the company’s margins.

Shares of Nike rose more than 10% after hours on Tuesday.

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Here’s how Nike fared in its fiscal second quarter compared to what Wall Street expected, based on a Refinitiv analyst survey:

  • Earnings per share: 85 cents vs. 64 cents expected
  • Revenue: $13.32 billion against $12.57 billion expected

The company reported net income for the three months ended Nov. 30 of $1.33 billion, or 85 cents per share, compared with $1.34 billion, or 83 cents per share, one year earlier.

Nike reported revenue of $13.32 billion, up 17% from $11.36 billion a year earlier.

Over the past three quarters, Nike has exceeded Wall Street expectations, but like other retailers, has struggling with bloated inventory levels resulting from supply chain disruptions, growing consumer demand and unpredictable in-transit shipping times.

Inventories rose 43% to $9.3 billion in the quarter from a year ago. The merchandise glut led to aggressive markdowns, which helped reduce Nike’s gross margin to 42.9% from 45.9% a year ago. However, inventories were down from $9.7 billion in the previous quarter.

The company also saw a 10% year-over-year increase in selling and administrative expenses to $4.1 billion, primarily due to advertising and marketing costs and investments in Nike Direct. , as the company continues to move away from wholesalers.

While the focus on Nike Direct was largely responsible for the increased administrative expense, the investment paid off. Nike Direct sales increased 16% for the quarter to $5.4 billion and digital sales increased 25%. In recent quarters, wholesale revenue has been effectively flat, but has increased 19% for the quarter.

Nike’s sales in China, its third-largest market by revenue, fell 3% from a year ago, continuing a trend the retailer is facing as the country faces persistent Covid lockdowns and to a slowdown in retail spending. Overall retail sales in the country fell 5.9% in November from a year ago and sales of clothing and footwear fell 15.6%, according to China’s National Bureau of Statistics.

After Nike’s first fiscal quarter earnings were released in September, executives said the company’s inventory had grown 65% in the past year in North America alone and as a result, the company adopted an aggressive promotional strategy to liquidate merchandise and make room for new products.

The plan was a key part of Nike’s strategy to shift its sales directly to consumers and away from wholesalers by improving the in-store experience and enticing customers to buy direct online from the company.

On Friday, Nike announced its new “Jordan World of Flight Milan” store located on Via Torino, a famous shopping district in the Italian region well known for its designer shoe stores.

The initiative reflects steps taken by Nike to develop the company as a direct-to-consumer brand.

The store, dubbed a “first-of-its-kind retail experience” by the company in a press release, features an integrated members’ lounge and will include interactive shopping experiences tailored for fans of the popular brand. sneakers.

Read the company’s earnings release here.

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