Nike (NKE) earnings Q4 2023

Nike missed on earnings during its fiscal fourth-quarter for the first time in three years as the retailer reported lower margins that weighed on profits.

Shares dropped nearly 4% in extended trading. Shares have fallen about 3% this year.

Here’s how the sneaker giant performed during the quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Earnings per share: 66 cents vs. 67 cents expected
• Revenue: $12.83 billion vs. $12.59 billion expected

The company’s reported net income for the three-month period that ended May 31 was $1.03 billion, or 66 cents per share, compared with $1.44 billion, or 90 cents a share, a year earlier. Earnings came in below Wall Street’s expectations, in a rare miss for the retailer.

Sales rose to $12.83 billion, up about 5% from $12.23 billion a year earlier and ahead of Wall Street’s estimates. The company beat revenue estimates for the seventh straight quarter.

For its full fiscal year, Nike’s revenue was $51.2 billion, up 10% compared to the prior year. It beat analysts’ expectations of $50.99 billion, according to Refinitiv.

However, profits for the full year also came in below expectations. The athletic apparel retailer reported earnings per share of $3.23, just short of the $3.24 Wall Street had expected, according to Refinitiv. Nike’s net income for the year was $5.1 billion, down 16% compared to the prior year.

Nike’s gross margins fell again during the fourth quarter, contributing to the earnings miss. They dipped by 1.4 percentage points to 43.6%, but narrowly beat analysts’ expectations of 43.5%, according to StreetAccount. The company attributed the drop to higher product input costs, elevated freight and logistics expenses, higher promotions and unfavorable currency exchange rates.

Other retailers that reported earnings recently noted freight and logistics costs had gone done for them, providing a boon for their margins after supply chain headaches subsided.

While Nike is among the top athletic apparel retailers, it’s not immune to overall softness in the footwear and apparel categories that has plagued its competitors.

The apparel and footwear industries have been hit particularly hard as consumers pull back on spending and get more selective about where they spend their discretionary dollars. That in turn has forced Nike and other retailers to spend more on marketing and promotions to drive volume, which has pressured margins. 

For the last several quarters, Nike has grappled with bloated inventory levels, which have also weighed on its margins. Inventory value came in at $8.5 billion in the fourth quarter, flat compared with the prior-year period, while units fell compared to the previous year.

Still, inventories are running around 23% above levels seen in 2021, prior to the supply chain constraints that caused inventory woes across the industry, according to retail analyst Neil Saunders, the managing director of GlobalData.

“In our view, Nike has been caught on the hop in term of the levels of stock it ordered; and it was too slow to react to the more sluggish levels of growth that have come with a challenging consumer economy,” said Saunders.

In March, executives said on a call with analysts they were “increasingly confident” the company would be able to exit the fiscal year with healthy inventory levels. They noted sales momentum could lead to “even leaner inventory” than anticipated. 

Nike has been relying on its wholesale partners to reduce inventory levels. The push boosted its wholesale revenue over the past few quarters, but didn’t help its margins much.

The company said in March that it expects revenue from that segment to moderate moving forward. It did in the company’s fourth quarter. Sales from Nike’s wholesale segment came in at $6.7 billion for the quarter, down 2% from the year-ago period.

Still, Nike recently restored some of the wholesale relationships that it cut when it first began focusing on its direct-to-consumer strategy in 2020.

Both DSW and Macy’s will start selling a range of Nike merchandise again in October, the retailers both announced in June. 

Macy’s hasn’t received a shipment from Nike since December 2021, but will now resume selling its apparel, including plus size women’s, big and tall men’s, kid’s, bags and other gear, the department store told analysts during an earnings call. Nike’s more premium offerings appear to be off the table for sale at Macy’s.

The decision to bring Macy’s and DSW back under the Nike fold has left some investors wondering if the company is moving away from its direct-to-consumer strategy, which is still bringing in high sales even though it comes at a cost.

Sales from Nike’s Direct channel rose 15% year-over-year to $5.5 billion. Sales at Nike-owned stores and its online channels led the growth. At stores, sales jumped 24% and online, revenue climbed 14%. 

Nike’s selling and administrative expenses jumped 8% in the quarter to $4.4 billion and have been steadily climbing. Operating overhead expenses increased 10% to $3.3 billion, which the company attributed to wage-related expenses and variable costs associated with its Nike Direct channel. 

Investors have also been curious to see how sales have rebounded in China following Covid lockdowns. During Nike’s fourth quarter, sales in China rose 16% year-over-year to $1.81 billion, ahead of Wall Street’s estimates of $1.68 billion, according to StreetAccount.

While sales jumped significantly, Nike is up against easy comparisons in the region. During Nike’s fiscal fourth quarter in 2022, China was still grappling with lockdowns.

During Nike’s holiday quarter, China sales came in below estimates. The country overall has since seen an uneven path of economic recovery. In April, retail sales in China rose 18.4% but came in lower than economists’ forecast of 21%.

Sales rose across all of Nike’s other markets. In North America, sales climbed 5% to $5.36 billion, compared with estimates of $5.29 billion, according to StreetAccount. In Europe, the Middle East and Africa, sales rose to $3.35 billion, compared to estimates of $3.04 billion. In the Asia Pacific and Latin America regions, sales came in at $1.7 billion, a slight miss from analysts’ expectations of $1.72 billion.

Revenue for Converse, on the other hand, came in far below estimates. Sales for the brand slid 1% during the quarter to $586 million, below the $615.7 million analysts had been anticipating, according to StreetAccount.