What happened
Shares of Nike (NKE -0.28%) gained 14.5% in the second half of 2022, according to data provided by S&P Global Market Intelligence.
For the full year, shares were still down close to 29%, but had bounced up 41% higher than its 52-week low of $82.
Image source: Getty Images.
So what
Nike reported a respectable set of earnings for the fiscal second quarter. For the first six months of the fiscal year, revenue went up 10% year over year to $26 billion and gross profit inched up 4% year over year to $11.3 billion. This result was achieved even as gross margin suffered a 3-percentage-point fall in Q2 because of strong discounting to clear excess inventories, and higher product input, freight, and logistics costs.
Investors also rejoiced at the news that inventory levels peaked back in in the first quarter as CEO John Donahoe gave the assurance that actions taken to clear the glut are working. What's more, Nike's Greater China region also posted healthy growth of 6% year over year on a constant currency basis despite numerous and constant COVID-19-related disruptions. Q2 also represented the company's strongest increase in member demand, with its digital business growing by an impressive 34% year over year, ending the quarter with 160 million active members.
The holiday season also saw strong demand for Nike's products that attested to its brand strength. In the U.S., both Black Friday and Cyber Week set new records for demand and website traffic while chalking up double-digit year-over-year revenue growth. In the Europe, Middle East, and Africa segment, demand increased by 75% compared to a year ago and China's Eleven Eleven campaign also saw mid-teens year-over-year growth in sales. CFO Matt Friend has also affirmed that average selling prices have increased across all of Nike's geographies, helping the retailer to stay ahead of high inflation rates.
These numbers imply that Nike is executing well despite the economic headwinds and continues to effectively engage its customer base through its suite of apps, thereby generating valuable customer loyalty that should help to power sales into the future.
Now what
The worst seems to be over for Nike as it has cleared off the excess inventory that accumulated due to supply chain disruptions and temporary factory closures. Demand for the company's products continues to remain strong as evidenced by the holiday season numbers, and this should assure investors that the brand remains as relevant as ever.
China has also finally reopened its borders to international travelers after nearly three years of closure. Nike stands to benefit as China is one of its major sales regions that should witness a recovery in shopper traffic once stores are allowed to operate normally again.
