Nike (NKE) earnings Q3 2024

Nike‘s China sales continued to slow during its holiday quarter, however the retailer beat estimates on the highest and bottom line, helped by higher than expected growth in North America and price changes.

Here’s how the corporate performed in its fiscal 2024 third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly often known as Refinitiv:

• Earnings per share: 77 cents vs. 74 cents expected
• Revenue: $12.43 billion vs. $12.28 billion expected

The corporate’s reported net income for the three-month period that ended Feb. 29 was $1.17 billion, or 77 cents per share, compared with $1.24 billion, or 79 cents per share, a yr earlier. Excluding 21 cents per share related to restructuring charges, earnings per share would have been 98 cents, the corporate said.

Sales rose to $12.43 billion, up barely from $12.39 billion a yr earlier.

In North America, where demand has been unsteady, sales rose about 3% to $5.07 billion, compared with estimates of $4.75 billion, in keeping with StreetAccount.

Meanwhile, sales in the remainder of Nike’s regions got here in below estimates. In China, sales reached $2.08 billion, slightly below the $2.09 billion analysts had expected. Revenues within the region climbed 5%, but growth there has decelerated as demand normalizes after Covid-19 lockdowns.

In Europe, the Middle East and Africa, revenue fell 3% to $3.14 billion, worse than the $3.17 billion that analysts had expected, in keeping with StreetAccount. In China, sales grew 5% to $2.08 billion, slightly below the $2.09 billion analysts had expected. Sales in Asia Pacific and Latin America rose 3% to $1.65 billion, below the $1.69 billion analysts had expected, in keeping with StreetAccount.

Nike shares rose about 5% after its report got here out, but later dropped by as much as 7% after it released its guidance for the present quarter and financial 2025.

Excluding restructuring charges, the corporate reiterated its sales outlook for fiscal 2024, and said it expects revenue to grow by 1%, in keeping with expectations of up 1.1%, in keeping with LSEG. For the present quarter, it expects revenue to be up barely, in comparison with estimates of up 2%, in keeping with LSEG.

Nike anticipates gross margins will grow 1.6 to 1.8 percentage points, helped by “strategic price increases, lower ocean freight rates, lower product input costs and improved supply chain efficiency,” finance chief Matthew Friend told analysts.

The improvements are offset by higher markdowns and reduced advantages from Nike’s channel mix, together with foreign exchange headwinds, Friend said. Those shifts in mix are related to changes in how often consumers are shopping online versus in stores or with Nike’s wholesale partners.

For the complete yr, it expects gross margins to grow about 1.2 percentage points, below the 1.4 to 1.6 percentage point uptick that analysts had expected, in keeping with StreetAccount. 

For fiscal 2025, Nike expects revenue and earnings to grow versus the prior yr, however it didn’t say by how much. Analysts had expected revenue guidance of up 5.6%, in keeping with LSEG. 

Friend said Nike is “prudently planning” for revenue in the primary half of fiscal 2025 to be down low single digits, reflecting “a subdued macro outlook all over the world.” 

As consumers pull back on spending on discretionary items like clothes and shoes, Nike has spent the past few months focused on what it might probably control: cutting costs and becoming more efficient so it might probably drive profits and protect its margins. 

In December, it announced a broad restructuring plan to cut back costs by about $2 billion over the subsequent three years. It also cut its sales guidance because it warned of softer demand within the quarters ahead. 

Two months later, it said it was shedding 2% of its workforce, or greater than 1,500 jobs, so it could spend money on its growth areas, equivalent to running, the ladies’s category and the Jordan brand.

The early innings of Nike’s cost cuts, which involve simplifying its assortment, reducing management layers and increasing automation, likely helped the retailer beat earnings expectations within the three months ended Nov. 30, at the same time as it missed sales estimates for the second quarter in a row. 

The cuts, together with “strategic pricing actions and lower ocean freight rates,” also contributed to a 1.7 percentage point gain in gross margin — the primary time the corporate saw its gross margin increase in comparison with the prior yr in no less than six quarters. 

Nike’s gross margin recovery continued through the quarter. The retailer’s gross margin grew by 1.5 percentage points to 44.8%, driven by “strategic pricing actions and lower ocean freight and logistics costs.” The gains were partially offset by higher product input costs and restructuring charges, company said.

Nike remains to be considered a market leader within the sneaker and apparel space, however the category has change into more crowded and the retailer has needed to work harder to compete. Some analysts say its assortment has lost focus and say the corporate has fallen behind on innovation, giving up market share to newer entrants like Hoka and On Running, in addition to legacy brands like Brooks Running and Latest Balance. 

Last month, Nike launched the Book 1, its latest basketball shoes with NBA star Devin Booker. But the discharge wasn’t well received since it “looked more like an off-the-cuff sneaker as a substitute of [a] basketball shoe,” in keeping with a research note from Jane Hali & Associates. 

The firm is now neutral on Nike long run, in comparison with its previous rating of positive, since it’s unclear where the brand is headed, said senior analyst Jessica Ramirez.

She’s noticed that Nike has removed lots of products from its offering, which indicates it’s preparing to usher in latest styles. However it’s still unclear exactly what those changes will appear like.

“They’ve already said [those changes are] going to take a while,” Ramirez told CNBC prior to Nike’s earnings release. “Its slightly concerning to know they do not have a solid plan that we all know of yet.”

Read the complete earnings release here.