Nike Inc. Beat by Wide Margin Despite Supply Bottlenecks

Nike (NKE) yesterday reported its quarterly financial results after the bell. The legendary sportswear company’s Q2 GAAP EPS of $0.83 beat expectations by $0.21, while revenue of $11.36 billion (just +1.1% YoY) also exceeded the consensus forecast by $110 million. Nike said net income rose to $1.34 billion from $1.25 billion a year earlier. Revenue edged up 1% to $11.36 billion from $11.24 billion, outpacing estimates of $11.25 billion.

NKE shares on today’s premarket are +3.82% at the time of writing.

NIKE outlined its new Direct sales effort showed a revenue increase of 9% to $4.7 billion, on a reported basis and up 8% on a currency-neutral basis. In addition, NIKE Brand Digital sales increased 12%, or 11% on a currency-neutral basis, led by 40% growth in North America. Nike said its digital sales rose 12% YoY, while the company had been increasingly pulling its goods out of wholesale channels, such as discount stores, and instead is selling more workout gear through its own website and brand stores. All in all, the gross margin increased 2.8 percentage points to 45.9%.

The company said low inventory levels led to falling revenues in Greater China (-20%) and Asia Pacific & Latin America (-8%), while North America (+12%) and Europe, Middle East, & Africa (+6%) delivered growth. Sales in North America, Nike’s biggest market, climbed 12%, representing the highest growth of all geographies. But CEO John Donahoe said the retailer is in a “much stronger competitive position” than it was pre-pandemic.

Surprisingly, the company didn’t offer an update for its full-year outlook in its earnings release. Earlier this year, Nike slashed its revenue forecast for fiscal 2022 “to account for longer transit times”, labor shortages and prolonged production shutdowns in Vietnam. Although Nike delivered strong results and is expected to appreciate in the near term, our biggest concern is the sales outside the U.S., where the reported supply bottlenecks may be in fact just a part of the problem, whereas with strengthening dollar and increasing competition of the cheaper lookalikes Nike may be slowly giving up its market niche in the ~3.5 billion consumer market.