Nike (NYSE: NKE) shares were up 14% as the company beat Wall Street's expectations on the top and bottom lines in addition to better than expected guidance. The company continues to make progress in terms of reducing bloated inventories and continues to see strength in digital sales.
Overall, Nike shares are now down 38% from their all-time high last year and 35% YTD. Shares are up 41% from their recent low in early October. The company's multiples have compressed due to the stock price being flat since the summer of 2022, while earnings are substantially higher. It's quite possible that earnings could see some volatility in the coming quarters if a recession materializes, but the company has a long track record of consistent growth and outperformance.
Inside the Numbers
In Q3, Nike reported $0.85 in earnings per share which exceeded analysts' estimates of $0.64 per share. Revenue also came in above expectations at $13.3 billion vs $12.6 billion expected. Overall, earnings were down about 1%, while revenue was up 17%.
Due to the strong performance, the company said that it now expects positive revenue for the full year after previously calling for a slight dip. Equally important, it sees demand staying resilient, supply chain issues improving, and transit costs and times plummeting.
Compared to last year, inventories were up 43%. However, this is a small, sequential decline from last quarter which is expected to continue as the company discounts products to get them to move faster. As a result, gross margins are down by 300 basis points and fall another 2% next quarter.
Digital sales were up 25% with the company citing its membership platform as a big factor in the increase in sales. It also said that Black Friday and Cyber Monday sales exceeded expectations.
Chinese sales were down by 3% due to lockdowns and an impaired economy. It will be interesting to see if this bounces back as the country embarks on a reopening. North American sales accounted for the majority of the company's growth.
It's possible that Nike could revisit its lows if the economy continues to deteriorate. However, if a 'soft landing' does emerge, then Nike will likely see new highs in 2023.