Shares of Nike (NKE 0.79%) are up 13.6% on Wednesday at 11:03 a.m. ET, following the athletic shoe and apparel giant's Tuesday evening release of its results for the second quarter of fiscal 2023.
The main catalysts driving the stock's pop are quarterly revenue and earnings that beat Wall Street's consensus estimates and management raising full-year revenue guidance.
Here's an overview of Nike's report centered around five key metrics.
NYSE: NKE
Key Data Points
1. Revenue grew 17%
In fiscal Q2, which ended Nov. 30, net sales rose 17% year over year (and 27% in constant currency) to $13.32 billion, topping the $12.57 billion Wall Street had expected.
Revenue growth was broad based across sales channels:
- Nike direct sales increased 16% year over year as reported (and 25% in constant currency).
- Nike brand digital sales jumped 25% (and 34% in constant currency).
- Wholesale revenue grew 19% (and 30% in constant currency).
Brand growth was led by Nike:
- Nike brand revenue rose 18% (and 28% in constant currency) year over year to $12.7 billion, driven by strength across all geographies and channels.
- Converse revenue was up 5% (and 12% in constant currency) to $586 million, driven by double-digit-percentage growth in North America, partially offset by a decline in Asia.
2. Gross margin declined 3 percentage points
The quarter's gross margin was 42.9%, down 300 basis points (3 percentage points) from the year-ago period. A decline in this ballpark was expected by management, which shared this expectation on last quarter's earnings call.
The drop in gross margin was primarily due to an increase in markdowns to liquidate out-of-season inventory (primarily apparel in North America), continued currency headwinds, and inflation-driven higher transportation and input costs.
Nike ended the quarter with inventory of $9.3 billion, up 43% from the year-ago period, though a slight improvement from $9.7 billion in the prior quarter.
3. EPS edged up 2%
Net income was $1.33 billion, flat with the year-ago period, which translated to earnings per share (EPS) edging up 2% to $0.85. This result sprinted by the Wall Street consensus estimate of a 22% decline in EPS.
The high-inflation environment has caused many consumers to cut back on discretionary spending, so Nike investors were probably relieved to see that the company's bottom line held steady.
4. Cash, cash equivalents, and short-term investments dropped 30%
Nike ended the quarter with $10.6 billion in cash, cash equivalents, and short-term investments, down from $15.1 billion in the year-ago period. The decline was due to free cash flow being offset by share repurchases and cash dividends.
The company exited the quarter with long-term debt of $8.9 billion, down from $9.4 billion in the year-ago quarter.
5. Fiscal 2023 reported revenue is expected to grow in the mid-single-digit-percentage range
On the earnings call, CFO Matt Friend updated the company's guidance for fiscal year 2023:
- Revenue in constant currency is expected to grow in the low-teen-percentage range (which probably implies 13% to 14%), up from the prior outlook of growth in the low-double-digit-percentage range (which probably implies 10% to 12%).
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Reported revenue is expected to grow in the mid-single-digit-percentage range, up from the prior guidance of low-to-mid-single-digit-percentage growth.
- Gross margin guidance is unchanged. Management still expects gross margin to decline between 2 and 2.5 percentage points from fiscal 2022, primarily due to ongoing liquidation of out-of-season inventory.
In short, Nike had a good quarter considering the tough macroeconomic environment for consumer discretionary product companies.
