Nike and Micron Just Set the Stage for Stock Market Disappointment

The enthusiasm that came to Wall Street on Wednesday proved to be short-lived, as investors seemed to lose confidence just as quickly as they regained it. Thursday brought sustained declines for major market benchmarks that all but wiped out the previous-day's gains for the Dow Jones Industrial Average (^DJI 0.37%) and completely reversed the rises in the S&P 500 (^GSPC -0.95%) and Nasdaq Composite (^IXIC -2.11%), with room to spare.

Data source: Yahoo! Finance.

Investors had hoped that the latest quarterly reports from Nike (NKE -0.66%) and Micron Technology (MU -5.13%) would help to add confidence about the earnings season that's about to begin in earnest. However, both reports indicated pullbacks on the bottom line.

Unfortunately, that seems to be a trend that shareholders in many companies might have to get used to in the weeks ahead. Read on and learn more about what Nike and Micron said about the current business environment and what they see coming down the road.

Nike takes a tumble

Nike released its fiscal first-quarter financial report after the close of regular trading on Thursday afternoon. The report for the period ending Aug. 31 showed mixed performance that reflected the increasing pressure on the athletic footwear-and-apparel giant, as well as some of the headwinds affecting the consumer economy more broadly.

Nike's numbers told the story. Revenue climbed just 4% to $12.7 billion, with the company reporting 6 percentage points of headwinds from the strong U.S. dollar, compared to major foreign currencies. Nike Direct sales were up 8% year over year, led by a 16% rise in digital sales and particular strength in the European market. However, gross margin figures were down more than 2 full percentage points to 44.3%, and earnings of $0.93 per share were down 20% from the year-ago period.

Details about where Nike had the most success were also full of insight. The weakest area for the company was its Greater China region, where sales actually fell from year-earlier levels. Wholesale revenue growth was also relatively slow, climbing just 1%. By contrast, double-digit percentage gains in Europe, North America, and the company's Asia-Pacific and Latin America segment helped bolster overall enthusiasm.

Based on the stock-price decline, investors had clearly hoped that Nike would more quickly overcome the challenges of supply chain disruptions and cost pressures. The company itself remains confident in its long-term promise, but how patient shareholders can stay remains to be seen.

Micron sees falling financials

Micron shares held up better, falling less than 1% in after-hours trading. The chipmaker did see some of its fundamental business metrics decline, though, confirming what many see as an impending cyclical weakening of the semiconductor industry.

Micron's fiscal fourth-quarter results for the period ending Sept. 1 showed deteriorating sales and earnings. Revenue was down 20% year over year to $6.64 billion, with an even steeper drop from where sales were three months ago. Adjusted earnings of $1.45 per share were 40% lower than in the same quarter last year.

In response, CEO Sanjay Mehrotra said that Micron would take what he called "decisive steps" to slow down the rate of supply expansion, most notably by cutting expected spending on new semiconductor fabrication equipment in half for the coming year. Nevertheless, many investors weren't pleased with Micron's guidance for the fiscal first quarter, which includes a further decline in sales to somewhere between $4 billion and $4.5 billion and earnings that could barely break even.

Investors had hoped that releases from Micron and Nike would be more positive to support a bounce in the stock market. Unfortunately, the trends that the two companies identified could become familiar themes for many other stocks as earnings season progresses.