When Nike (NKE +3.03%) reported fiscal fourth-quarter 2022 earnings on June 27, it was our first major look at how consumer behavior has changed in the first half of the year as interest rates rose and the economy showed signs of slowing.
There were some points of weakness, but nothing that would indicate we are headed toward an economic calamity. For now, Nike Chief Financial Officer Matthew Friend doesn't think consumers are pulling back at all, despite what the market seems to believe.
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What Nike thinks about the economy
I believe sporting goods, shoes, and clothing are a great indicator of economic health because they're a necessity in the long term, but short-term they're more of a discretionary purchase. I need to have shoes, but I can also put off buying another pair for a month or two if needed.
The recent financial results show some spots of weakness for Nike and some strengths. Revenue was down 1% in the fiscal fourth quarter ended May 31, although it rose 3% when adjusted for currency changes. Revenue was up 20% in Europe, the Middle East, and Africa, and it surged 24% in Asia-Pacific and Latin America. Not surprisingly, China revenue dropped 20% after lockdowns kept millions of people at home and North America sales fell 5%.
But management doesn't seem too worried about the economic picture. Friend said, "We continue to closely monitor consumer behavior and we're not seeing signs of pullback at this point in time, and so we continue to execute the strategy and the plan we have, which is working."
If there was a big change in consumer behavior, then Nike should be seeing it. As of late June, the company's not experiencing a pullback and forecasts suggest the consumer could get stronger.
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Key Data Points
More growth ahead
In fiscal 2023, Nike expects revenue to rise by a low-double-digit percentage. There may be margin pressures from higher materials and transportation costs, but consumer demand appears to be strong.
There's been a lot of worry about the economy and slower spending by consumers. But if Nike isn't seeing it now or through the middle of 2023, when the fiscal year ends, should investors be a little less concerned?
One data point to keep in mind
The next few months will tell us a lot about the state of the economy and the stock market. There are still millions of job openings, and consumer goods companies like Nike don't seem to be seeing weakness in spending right now.
On the flip side, gasoline prices are still high, rents are rising, and interest rates are going up. These are the factors that investors are most worried about today.
Take Nike's earnings and comments as a data point to keep in mind as more companies report results in the next few weeks. It's possible the economy isn't as bad as the stock market is telling us -- at least right now.
